I was interviewed by Matt Hougan wearing his HardAssetsInvestor.com hat about integrating commodity exposure into a portfolio.
You can read it here if you are interested.
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7 comments:
welcome back. Question for you and the readers.
The price of Brent is diverging from WTI significantly these days.
There are lots of theories as to why. Somebody on CNBC Asia said last night that this is due to inventory rise in Oklahoma where the WTI is delivered. Due to problems with two refineries.
Here is my question. If we assume that the prices eventually will converge again, does this present an arbitrage opportunity by going long WTI and short Brent??
if so, is there a way to trade Brent as an ETF or a stock without using Futures? I own a small position in USO so that covers going long WTI. I do not know of any equivalent for Brent though.
thanks.
ETFSecurities created a Brent ETF a while ago but it only trades in London. You can get a quote on YahooFinance with ticker OILB.L.
I don't think it is accessible through normal US channels but you should ask your brokerage firm directly.
I believe that StockCharts.com will chart Brent so you can study for yourself if this has happened before and if so how long it has lasted and so on.
To be clear I am not pursuing this sort of trade.
Good interview Roger. Even those who created some of these commodity ETFs had to do some midstream adjustments to deal with futures market phenomena such as contango; e.g., Deutsche Bank's commodity desk has an excellent reputation but when their first ETF, DBC, came out the contract rollover was automatic to the next contract date and rollover yield was being seriously degraded because the largest positions were in the oil space and contango is fairly common there (in contrast, backwardation is somewhat more common in corn, wheat and, to a lesser degree gold, contracts) so DB developed a more flexible strategy to roll over the contracts that were least contangoed first; they even trademarked it as Optimum Yield Excess Return, almost as if they'd meant to do that all along ;->
FWIW, DBC seems to be tracking well and performing as expected and since it tracks three key commodity sectors for me I've added it for now although the heating oil component doesn't interest me as much at this point (assuming global warming doesn't alter the gulf stream and freeze Europe out for awhile); I also have a minor position in DBA to boost the agricultural % and, as you describe, more closely observe fund behavior.
Thanks for the link Roger, good interview.
John Spense has a good article on oil ETFs at Marketwatch.com:
http://tinyurl.com/223ulz
Most of this are things you've already discussed.
A couple questions:
1. Why isn't contango an issue with commodity funds such as DBA?
2. Besides Gold (in which the hard asset can be held by the fund operator), are ETFs a bad vehicle to access commodities? It sure seems that way.
Tom K oil can sometimes be in backwardation too but apparently it has to do with oil being more expensive to store.
Are ETFs a bad vehicle? ETFs have drawbacks. If you bought the futures yourself then you would have to manage the roll yourself and the leverage.
Doing this yourself is clearly possible but there are drawbacks to this also.
I am slow to incorporate commodity products so that I can get some handle on these issues.
Hi Roger,
This is off topic sorry. I have been looking at TIC (fractional real estate investments) and I was wondering if you ever advise your clients to use them or have good/bad experience with them.
Thanks for all the thoughtful ideas over the last year!
Tom
no client has ever asked me about fractional RE ownership.
I can appreciate that each deal is different and some might be good and some not.
Not much of answer but not really my expertise either.
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