Sure, we all like things for free, especially when it comes to investing. But is FREE always the best way to go when it comes to the purchase of ETFs? The WSJ (subscription required) had some thoughts on the matter in “The Limits of Free:”
“Free” is a hard word to resist.
That’s what five big investment houses were counting on when they rolled out exchange-traded funds without trading commissions.
But whether investors should take the no-commission route is by no means a no-brainer.
It was up, up and away as far as our model portfolios was concerned with the worst one “only” gaining 2% during the past 4 trading days. Especially the income portfolio rocketed higher by gaining over 3%. Obviously, there is no guarantee that this will continue but, right now, the ETF Income portfolio is clearly in tune with market momentum.
Again, there is no right or wrong, or better or worse, when it comes to portfolios; the only thing that matters is what’s appropriate for your particular circumstances.
Let’s take a look at the first one:
Silver ETFs have been the hot ticket item outperforming just about any other investment with put and call options setting a single-day volume record yesterday, according the WSJ (subscription required):
Silver stole the show in the options market Monday, as traders hoping to profit from the metal’s gains helped set a new single-day volume record in “puts” and “calls” for iShares Silver Trust.
Silver’s rise has been nothing short of meteoric, with investors piling into the futures market, the silver exchange-traded fund and other vehicles. They have flocked to the metal in lieu of currencies, to build inflation hedges or to avoid spending money on pricier gold. With Monday’s gains, the price of silver has risen more than 52% this year. The ETF finished 30 cents higher, or 0.7%, at $45.83, after jumping as much as 3.2% earlier in the session.
Market participants said the latest options rush was driven by speculative money attracted to silver’s volatile price movement, and also by investors who are reluctant to hold big positions in silver futures or in the ETF itself but still want to profit. In choosing options instead of the underlying instruments, traders have the right, but not the obligation, to buy or sell the underlying shares.
“It’s very challenging to step in front of this,” said Michael Khouw,
Here’s the latest update, which includes the Cutline pricing information after a week of market gains. Not surprising, equity funds showed strong upward momentum over the past few trading days:
RYAZX (small value) moved from -15 to +3
FAIRX (mid-cap blend) moved from -14 to +4
FSAGX (gold) moved from -2 to +14
In the bond area, we saw the following changes:
OIBAX (world bond) moved from +3 to +17
BEGBX (world bond) moved from -1 to +20
Form the above, only bond funds are currently showing positive momentum numbers across the board, but the DD% figures are not enticing at this time.
Let’s take a look at the latest cut line table for mutual funds:
It’s no secret that energy and food prices have been the fastest rising component of the monthly CPI report. As a result, investors have poured money into crop-focused ETFs at an alarming rate, as the WSJ (subscription required) reports in “Playing With Your Food:”
Corn costs more than twice what it did last June. Wheat futures have shot up by three-quarters. Soybeans have soared by nearly half.
For lots of investors, those are mouth-watering numbers—and they’re snapping up exchange-traded products that specialize in agriculture. But moving into this market can mean risks and complications.
The returns of crop-focused funds can vary significantly from the prices in news headlines, due to the quirks of futures investing. And some funds hold shares in agriculture and food companies, which can be hurt as well as helped by rising commodity prices.
Of course, there’s an even more basic worry—that commodity prices will fall instead of rise. Cotton shot up over 50% from early January to early March, and then dropped nearly 15% within two weeks.
This week, you’ll notice again that ETFs do not remain in the same position in relation to the cutline for very long when market weakness or strength sets in. With the last few trading days having been bullish, some ETFs improved their positions.
Moving above the cutline to a +3 position from -1 last week, was PFF, which now also sports positive momentum numbers across the board, along with a low DrawDown percentage. Losing some momentum was PBW, which dropped from +5 to +2.
The lesson is that you need to have ETFs move above the cutline by a decent margin before considering them as a buy. Additionally, you want to make sure that all momentum numbers across are positive before taking a position.
Take a look at this week’s table: