Geoffrey Lordi

Are Agricultural ETFs Immune to the Current Crisis?

Hey, Gary,

I recently took a look at the soft commodity ETF plays...Most of them are fairly closely correlated to the S&P's movements. DBA isn't bad - at .918 - but it's not exactly a significant diversifier, either.

For those who might be interested in commodities as diversifiers (and willing to expand beyond soft comms.), MarketVectors' Hard Commodity Producers, though expected to correlate roughly .70 with the S&P according to Van Eck, sports a since-inception r^2 of ~.411.

The 'Reflation' Top Ten Portfolio

Hello, Rayno,

My point re: ProShares etfs is that they are designed for very short term applications and do not definitively track 2:1 or 1:2 over the long term, even after accounting for fees. For example, I'm currently comparing SSO:SPY. At 11.41AM, SSO is down just shy of 100% more than SPY, which makes sense since SSO is an S&P Ultra etf...However, because of the options-strategy based manner which motivates SSO, if the S&P is up 2.1% this month, I cannot expect that SSO will be up 4.2%; similarly, if the S&P is up 6.2% at year end, I cannot expect 12.4% gains (even without considering fees) from SSO. Sometimes this works out for the better (overshot gain performance), sometimes not (vastly undershot performance). A prime case to support the former situation is SDS' one month performance: +5.69% vs the S&P's +5.05%.

Here are some examples that led folks astray over the last *year*:

FXI (China) down 47%, but its double-inverse FXP short down 58%;
EEM (emerging mkts) down 47%, its double-inv EEV down 38%;
IJR (Russell 2000) down 28.3%, TWM down 22.4%.

But...
SPY down 35.1% and SDS up 16.4%;
XLU down 30.5% and SDP up 15%...

There are other examples - some where the ProShares funds have overperformed: some where the opposite is true.* And while some folks would gladly take unexpected overperformance, we should be wise to realize that it *isn't* unexpected. After all, ProShares said it best on their website:

"ProShares are designed to meet daily objectives; results over longer periods may differ."

* These comparisons valid between 11AM and 12PM on Jan 7.

Don't get me wrong - I enjoyed your article. I just ask that you don't expect 2:1 *for sure* on your TBT strategy.

Take care,
Geoff L

The 'Reflation' Top Ten Portfolio

Considering that the ProShares double inverse vehicles yield that double inverse *only per day* (and not per week, month, or year), should we assume that you are only holding TBT on certain days? After all, there've been countless examples of what happens to these vehicles when they're not held as intended: for the extremely short term. (Disclosure: we've held SSO, DXD, FXP, and EEV.)

Tuesday Outlook: Commodities, Emerging Markets

XLF closed at 23.31 on its first day, 19.78 if you had since reinvested dividends.

GL

Thursday Outlook: Commodities, Emerging Markets

David,

I appreciate your thoughtful work. And, while I realize that you cannot publish data on *every* etf, do you have technical analysis for some of Currency Shares' products? What of other country etfs (some of which are relatively new), including Mexico (EWW) or Latin America's other growth engine, Chile (ECH)? And how about some of the less covered products, including South Africa (EZA), Israel (EIS), and Turkey (TUR)?

Thx,
GL

5 Tactics for 2008

Ellen,

Indeed, you are correct. We have owned both - Singapore (EWS) and Sweden (EWD) - concurrently, and separately, over the last few years.

Best,
GL

5 Tactics for 2008

User 114747,

Thanks for reading my article.

As I noted, a very high r^2 does not offer a traditional hedge, per say. Still, my investment return, including dividends, in EFA last year was more than triple that in our holdings of VTI.

While much of that gain multiple was due to the favorable currency denominations of many of EFA's tracked holdings, that (circularly) was *the* reason that EFA does provide a type of hedge - while many companies in the VTI might garner a reasonable percentage of their earnings from international business, nearly all of EFA's constituents do so. My sincerest apologies if I wasn't clear enough in my explanation.

And regarding my other hedges - consider them, or don't. I know what works for me, and as long as I am further building our funds (I am), then we should each take whichever path best works for us.

Best,
GL

5 Tactics for 2008

Hello, NARSpin,

Thanks for your comments.

I have used SKF before, and feel it is a good tool. It certainly provided some ballast during the steepest declines in banking, though I haven't been recently inclined to use it, caring to put together some cases for other investment possibilities instead.

Best,
GL

5 Tactics for 2008

Hello, NoFate,

Thanks for your comments.

Yes, I am holding IYR, even as I consider a moderate position in SRS. The reasoning behind it is this long/short strategy has worked for me in the past with other tracking etfs as a sort of counterbalance. If I implement correctly, I should see some dampened volatility.

Another reason is that I've been long IYR for a considerable period of time, and although I suppose I could have sold some as long term gains prior to December 31, I didn't really have many losses to offset this year.

Best,
GL

5 Tactics for 2008

Hey, folks,

Regarding the currency hedge section above...I meant that we already have exposure to the Euro (FXE) through our holdings such as Unilever, and to the Yuan through some of our PRC holdings. Although the FXY does indicate the CurrencyShares offering for Yen investing, I'm not sure how FXY got attached above to the China side of things...

Thanks for reading!
Geoff