ETF Commodities

wombat42_2

cloud_dog wrote: »

Guys, I think you are discussing a non-issue (50% in cash).

a) Its up to the fund manager to mange the fund - hence the big charges

b) The Fact Sheet is a statement at a point in time (1st Dec 08)

c) They don't updatethe fact sheet very often - its already a month out of date

I took a small position in this fund after the recent melt down and continue to add via monthly investments.

cloud_dog

The fact sheet is updated monthly and is updated relatively promptly - better than some funds which lag months behind. With ref to jon3001s comments, you could look at the fund as managing a commodities allocation and a smaller cash allocation on your behalf. There is no way you could keep making little adjustments to the cash v commodity ratio or to the mix of commodities on a daily or weekly basis as the Marlborough fund manager would do. Obviously the fund manager is not infallable but it is his full time job to know what is going on in the market and act accordingly. The objective of the fund is to better the CRB index
http://www.marketwatch.com/quotes/crb

It is the most widely used commodity index.

The fund has consistently beaten it. Its recent policy of high cash allocation has certainly saved big losses in the second half of the year. I think normally the cash allocation is less than 10%.

cloud_dog

Wombie.......... I have no issue with how managers want to manage their funds, afterall thats what they are paid to do. If I didn't like it I'd go somewhere else.

Regarding the update of the fact sheet, if they are now updating monthly then it must have been a failry recent occurance; beleive me mid / late 08 I was trying to get a more up to date picture of fund holdings and it was a number of months out of date.

Having said all this I don't think any of the three of us are actually disagreeing (unless I've missed something) so, good luck in 2009.

cloud_dog

tradetime

thrupence wrote: »

What are the extra risks in investing in ETF commodities?

I'm thinking here of the counter party issue we saw with AIG, not whether or not commodities in themselves are risky.

And are ETF commodities OK for long term investment, or are they better seen as for relatively short term trading?

Thanks, and happy New Year to all!!

One important thing is to know exactly what you are investing in, I know that sounds stupid, but you'd be surprised at the number of people who are "investing in one of those ETF thingy's," and when you check it, it is in actual fact an ETN. Subtle difference which to many means nothing, but in actual fact may mean a lot. An ETF invests in a basket of assets on behalf of the buyer of the product, so if the company goes bust the securities are sold off and the client gets reimbursed to their value. An ETN on the other hand is a debt instrument, basically the originating company issues unsecured debt which carries a promise to pay verses an underlying instrument which they take positions relative for themselves, subsequently if they go bust there is nothing to sell for the buyer of the ETN, and you get in line with other creditors. So the rule is here, understand exactly what you are buying. Counterparty risk is an issue, with ETN's but not with ETF's.
Another risk is that there has been a huge increase in the creation of ET--products in recent months, and basically the market cannot support them all, the risk here is, imagine you have an investment strategy, you are buying something, lets say an Oil etf, you "know" over the next 5 years it will go up, but you also know it could drop by 50% in the short term, no worries you are not going to sell it when it has dropped by 50% nine months in, because you have a long term horizon. Unfortunately the particular etf you have chosen has not attracted a great following, so the issuer decides to close the fund, thus they liquidate the assets and pay you back, thus they have crystalised your loss, basically on your behalf they have sold at a 50% loss! With a single commodity like oil, this may not be a disaster as you can immediately buy an alternative tracker, but if the fund you were in is a more complicated basket, there may not be another that accurately copies it. How to avoid this? Do your homework, check how long it has been in circulation since inception, how much assets it has and what sort of volume it is trading at on average, basically do your homework.