Reader Jim had this to say regarding commodity ETfs:
I’ve been looking for an “all in one” commodity EFT. While researching I ran across an ETF symbol “LSC” that while not perfect might do the job. I was hoping to get your thoughts.
First, let’s look at a 1-year chart:
In case you are not familiar with LSC, Yahoo’s profile had this to say:
The investment seeks to replicate, net of expenses, the S&P; Commodity Trends Indicator Total Return Index. The index is a composite of 16 highly liquid commodity futures grouped into 6 sectors. It positions each of the sectors either long or short (except energy) based on its price behavior relative to its moving average.
LSC has been around for a little more than a year, so a trend line (red) can be applied as you can see in the graph above. The average volume has been over 92,000 shares a day which means, at the current price of 9.33, a trading value of over $850,000.
While the markets were open, I checked the bid/ask spread, which was 2 cents.
If your potential investment in this fund is fairly small, I don’t see a problem in getting in and out quickly. However, I don’t not like Jim’s “all in one” description as it may lead to the wrong conclusion that this fund can simply be bought and held.
As with all investments, you want to pick an appropriate entry point. To me, that moment in time occurs when the price (blue) rises above its long-term trend line (red). As soon as your order has been filled, you need to set up a trailing stop loss and track it daily.
I have no positions in this fund and neither have my clients.
Comments 7
Ulli,
It seems as though we are all guilty at one time or another of looking for new ways to lose money and Jim seems to have found another good one. LOL
Ulli,
Looks like the long awaited and talked about correction has started. We really haven't gone up much over the last 5 weeks or so anyway. It only seems healthy to correct before going higher after these great gains since early April for me.
Wild Bill
Ulli,
Thanks Ulli for you work. I sure agree with Anon that Jim found a another great way to lose money, ever notice it is people who don't make money who are always looking for new ways to lose even more money. When you are in the tax prep. business you see the huge losses that people have and most traders I know lose more than they ever make over any given 5 year period. My motto is buy what is proven with a long term history and apply timing to it.
Ulli,
What a dumb ETF that was mentioned in this article, I can sure think of safer ways to make money than speculate on something so crazy as a commodity ETF.
I have a different view about commodity ETFs. I think they could be very good, in the future, as I believe that we are going to see mass inflation in the U.S., with China being the country that has the money to purchase commodities in a big way, has been doing so, and I predict will continue to do so. Noted expert commodity analyst Jake Bernstein has predicted the same, in his August 31 newsletter.
However, LSC had a bad month in June but recovered most of that in July. But, we're talking about going from about going from $9.88 a share to starting in June to closing today at $9.44. Anyway, using Ulli's stop loss, an invetor would have been stopped out fairly quickly in June.
I still think that a well-managed commodity ETF can do very well, with the inflation-commodity scenario, which I believe will play out. Of course, "well-managed" is the key.
Ulli,
It seems that we may have deflation coming, not inflation so a commodity ETF may not be such a good idea in the first place. This is 40 years of investing speaking here. Who knows what this Pres. O'bama may end up doing to our economy and I thought George W. was bad.
Ulli,
One has no way of knowing if an ETF is well managed for several years and by that time the underlying reason to buy it may have gone away so I would avoid this ETF mentioned in this blog message like the plague.