Depending on your level of ETF nerdiness you probably know that First Trust filed for a couple of interesting commodity stock ETFs. Specifically they have filed for a copper ETF and a platinum ETF--note these are stock baskets not commodity trackers. They will track ISE indexes but the ISE Index page did not have info on these two.
If these funds actually list I think the copper stock fund could be a very popular trading vehicle but I think I am more interested, based in initial impression anyway, in the platinum stock fund. It will cover all the platinum metals which are platinum, palladium (knew about that one), rhodium (knew about that one too), iridium, osmium and ruthenium (didn't know about those last three).
At this point there is no indication what will be in either fund so lets not put the cart in front of the horse just yet but while the copper fund will likely be heavy in Freeport (FCX) and Jianxi Copper (JIAXF) and the platinum fund will probably have a couple of South African companies and one or two from Russia but are there any companies that focus on rhodium or ruthenium? I don't know but I guess we'll find out.
The thing here that I think is positive is the specialization. Many people like to make fun of this sort of thing which is unfortunate. Investors can learn about various narrow segments but not be very comfortable picking a stock or two to capture the theme. Even people generally comfortable with stock picking in the context of a narrow portfolio might not want to pick a stock for every single slice of the market they want to own for example I'd rather own the PowerShares Water Portfolio (PHO) than a stock for that segment.
Moving to a similar subject I saw this article on Seeking Alpha about a recent IPO called China Hydroelectric (CHC). This could be a neat one, it ties together two things I am interested in; China and hydroelectricity. The company owns 11 plants outright and has a stake in one more. It will be using the proceeds, which were pretty small, to buy another plant. Based on the literature the company is profitable and has been around for a little while. It looks like the market cap started out at about $700
OK, here's the thing if you are interested in buying a stock as a proxy for a country that is more volatile than the US you might want to think long and hard about buying a stock that is likely to be much more volatile than the volatile country. So China in general seems to be a little more volatile than the US, or maybe you think a lot more volatile, and based on the limited trading thus far and the fact that it is a small company that will be transaction oriented CHC is likely to be more volatile than any of the broad Chinese benchmarks.
The opinion thus far doesn't even get into issue of whether the information provided by the company will be accurate which was raised in the comments of the SA post. It is a lot easier to think about stocks in this context that have around for a while and have a decent following that you can more easily find (be it CNBC Asia or websites). I do not assume anything malfeasant with the company but I do assume a whole lot of volatility. Where possible I try to make the task as easy as possible and a stock like CHC probably does the opposite.
14 comments:
I could be wrong but looking at the current market cap did you mean CHC was $700 million?
I point that out not to be a jerk to point out others' mistakes but because when I first read it I found myself not terribly shocked.
At x4 our population I would imagine that companies over there will have rather large market caps compared to American companies of similar size. This comparison wont be as clear as American to American.
As for CHC itself I am not sure if hydroelectric in China is the way to go. If they are having/will have drinking water problems wouldn't they need to pump from their rivers and thusly reduce the effectiveness of hydropower? I suppose it depends where the plants are built. Can hydropower be used with used sewage or industrial waste water that gets dumped into the rivers? If so I suppose its less a problem.
no it was a typo that i fixed. nothing wrong with pointing something like that out, thank you
I understand your focus on narrow, but I do not understand your focus on nonexistent ETFs.
Even if the make it to market, will they perform? Will they be of sufficient size to provide liquidity?
Shouldn't you be more focused on funds 1year old or even 2 year old?
BTW, if I didn't question everything you say we wouldn't have much discussion would we :)
China may move away from hydropower in the future, but they're going to have to stick with it now. There's no way they could build nuclear plants quickly enough to satisfy demand.
Roger,
I can understand your interest in both the metal mining funds. If you want to buy a copper miner the fund can replace that and save you some work. I imagine the "top 10" in the fund could almost be the whole fund.
Off topic, but pertinent to what is going on currently. Roger, you have in the past talked about bear markets starting with "rolling over," as in several successive monthly declines of 3% or more (if I remember correctly). The market is currently off about 6% from its recent SPX 1150 high. Based on my understanding of the "rolling over" concept, it would seem that the current pull-back is just that, a pull-back that is a buying opportunity that should pass and the the move north of 1150 should resume. Could you comment on these thoughts? Thanks.
you are referring to the 2% rule; an average 2% decline three months in a row makes for a slow rolling over which is how bear markets tend to start.
yes this could be a pullback but it seems like you are implying that after 6% it should turn back up (maybe you are not saying that, I don't know).
the other thing i would point out is that it is possible that where we are right now should still be thought of in the context of still being the same bear market. what if this 70% rally turns out to be similar to the 74% rally from the early 1930s?
Roger. I had "remembered" the 2% rule incorrectly and appreciate the refresher.
Your comment about the 70% rise off the March 2009 low triggers another question, however: Granted, the 70% rise could turn out to be a mini-bull (or a "sucker rally") within a larger bear market. However, with that line of thought, when would one declare the bear over and the next bull to have started? Maybe when we get back to the old Oct 2007 highs, or beyond that?
Thanks.
Market (SPX) currently off 1.5% for the day. Guess the market did not like Obama's State of the Union speech. I recall at one point he commented that he had failed to communicate his message (or words to that effect). I think the market thinks he communicated his message fine; however, the market and general public do not like the message. There was a recent poll where 77% think Obama is anti-business.
a 70% move in 10 months regardless of direction strikes me as a panic. i am not inclined to think the bear is over but that is not the important thing to me. i plan to go along for the ride up and get defensive if the market goes below the 200 dma.
I might add that the Japanese market since peaking out has had 3 "failed" rallies of over 50% before in every case going to new lows. I am not saying we are Japan, but wonder if indeed we might be....food for a very scary thought, I don't want to imagine what it would be like if we go to the March 09 lows again....
Only 66 S&P points away from putting on a tourniquet....
It is incredible that in just a few days we have taken out two month worth.
jeff from milan, italy
Roger,
I think this is a cyclical bull market (unless it reaches new highs then we can all argue some more). The continued comments by many people all over the place that this is a rally is just the wall of worry this bull needs to continue to go higher.
How high? Beats me but the uptrend seems to continue. I hate predicting how high, but I do not expect new highs. Other than that not much would surprise me.
I also expect when this correction is over for many to start worrying about being left behind.
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