Monday, April 23, 2007

More commodity ETFs

We've got more commodity-based ETFs coming down the pike this week.

Sponsors ETF Securities and Swiss bank ZKB are getting ready to roll out exchange-traded commodities (ETCs) based on several of the precious metals.

Forbes reports:

ETF Securities is scheduled to launch five new physically backed exchange-traded commodities (ETCs) based on platinum, palladium, gold and silver on the London Stock Exchange tomorrow.

Meanwhile, Swiss bank ZKB is planning to launch an EFT in platinum, palladium and silver on May 10.

ETCs, like ETFs, trade commodity futures, backing up every ounce of stock bought on paper with actual physical stock. As a result, the launch of an ETF often squeezes the market as it eats up the amount of physical stock available.

More coverage on the forthcoming ETCs can be found at Resource Investor. You may also want to check out their note on tightness in the silver market and Roland Watson's "empty ETF" theory.

A few practical notes on how some of the commodity-based ETFs have fared so far, and what investors should know about their actual performance and volatility:

1. Roger Nusbaum on including commodities and commodity-based ETFs in portfolios.

2. Bear Mountain Bull crew discusses problems with some of the commodity-based ETFs and MarketWatch adds their take, tying poor performance at the US Oil Fund (USO) to a contango in the futures market and the resulting hit from rolling over futures contracts.

3. Seeking Alpha contributor Richard Shaw claims ETNs sponsored by Barclays did a better job of capturing commodity related returns than some ETFs, particularly in the case of crude oil based ETF products.

However, a commentor notes that both instruments have significantly lagged their benchmark, the West Texas Intermediate crude oil price.

4. Dave Fry discusses commodity ETFs with Kevin Rich of DB Commodity Services in this recent podcast at ETF Digest.

Lots of news on the commodity ETF front, as you can see.

As mentioned in the Marketwatch piece on USO, we've also seen a recently launched natural gas ETF, and the sponsor behind these products is also planning ETFs that will track the price of heating oil and gasoline contracts.

Metals and energy are hot topics with investors, and this interest is not confined to the area of exchange traded funds. Check out the newly announced plans for a uranium futures contract at the NYMEX for further proof.