MTRIG's  Instablog

Many traders and investors jumped on energy based ETFs such as UNG or ETNs such as GAZ waiting for a seasonal bounce.

There are alternative energy investments that will pay an hefty 11% yield while you wait. These are in the form of Royalty Trusts or Limited Partnerships.

One large Canadian trust is Pengrowth Energy (PGH). Pengrowth boasts a 10.9% yield, and a low 5.5 P/E. Pengrowth owns properties that produce crude and natural gas. 

Provident Energy Trust (PVX) is another Canadian trust that has a 11.7% yield, and a low 8.6 P/E. Provident has oil producing properties in both the U.S. and Canada.

In order to diversify in this space there are close end MLP funds such as Cushing MLP (SRV), Claymore MLP Opportunity (FMO), Kayne Anderson (KYN), and MLP Strategic Equity (MTP), 

Instead of trading ETFs such as (UNG), (USO), (OLO), or ETNs such as (OIL) or (GAZ) buy Pengrowth (PGH) or Provident (PVX) for a long term energy investment and get paid a nice dividend to boot, something you will not get from a commodity based ETF.

If you like to stay more diversified pick up shares on Cushing MLP (SRV). Cushing MLP holds in the area of 30 MLPs in Crude, Natural Gas, and Coal. This closed end fund is more heavily weighted in Crude and Natural Gas.

Disclosure: MTR Investors Group holds PGH, PVX, and SRV.

Investors looking for ways for the highest investment returns tend to look beyond the stock market toward the futures market. Trading in futures long and short can involve more risk then trading in the stock market. This can happen if an investor is long a particular investment such as Oil Futures. If an Oil contract goes “limit down” the investor can be caught on the wrong side of the market with no way out.

There are other ways investors can take part of the benefits of the futures market without trading futures contracts or options on futures. Let's review a few areas first starting with the least commonly known investment vehicles.

1. Royalty Trusts (RT) generate income from the production of natural resources such as oil and gas. When an investor buys a RT they are paid dividends on the sale of the natural resource. When production increases so do the dividends paid to investors. The yields on RTs can be 8% or more a year. In additional to providing income to your portfolio RTs have capital appreciation by share price growth. Some examples of Royalty Trusts are Permain Basin (PBT) for oil and gas or San Juan Basin (SJT) for natural gas, 

2. Master Limited Partnerships (MLP) unlike Royalty Trusts an investor is paid dividends on the business such as a pipeline. There is another advantage of trading in MLPs and investor can purchase a closed end fund that holds a group of MLPs, in theory this should reduce risk. The following MLPs are highly held in many closed end funds: Energy Transfer Products (ETP), Kinder Morgan (KMR), Magellan Midstream (MGG). 

3. Closed end funds (CEF) provide the opportunity for an investor to buy under the market if the CEF is trading to a discount to the Net Asset Value (NAV). There are closed end funds that invest in MLPs and an investor may chose this route to limit risk by purchasing a group of MLPs. A few of these are First Trust Energy and Growth (FEN), Claymore MLP (FMO), Gabelli Gold and Natural Resources (68% Gold) (GGN). 

4. Exchange Traded Notes (ETN) "look and feel" like an ETF but there are a few major differences. An ETN is an unsecured debt security that is used to track an underlying index. The caution for investors is that unlike an ETF, if the issue of an ETN goes bankrupt and investor may loose all the investment or wait in line in bankruptcy court to get pennies on the dollar. iPath has one of the largest selection of ETN that track Oil (OIL), Natural Gas (GAZ), Livestock (COW), and every other sector of the futures market.  

5. Many Exchange Traded Funds (ETF) for the energy sector are commonly known. There are commodity ETFs that hold futures contracts such as US Oil (USO), US Natural Gas (UNG).  PowerShares Products Crude Oil (OLO), Commodity Tracking (DBC) Energy (DBE). There are other products that track oil companies such as PowerShares Oil Exploration (PXE).   In summary an investor can add commodities to their portfolio by using the investment vehicles noted in this article. Commodities provide a level of diversification and separation from the major stock market indexes.

The advantage of using these types of investments vs. trading in the futures market includes limiting risk, and the opportunity of dividend income that is not provided by trading futures contracts. 

The NDR Research paper for July shows that NDR has 70% allocated to stocks.  Ned Davis is of course the person who discovered the 4% Model based on the Value Line Arithmetic Index.  NDR moved to this allocation sometime in Mid April 2009.  The stock allocation recommendation is Small Caps and Growth.

The NDR Digest for July also defines the following Stock Trends stating that the Global Stock market is now a Bull Market. NDR goes on to discuss that they think there would be no more than a single digit correction (less than 10%) by the end of the year. They caution with the inflation outlook for 2010 that the market may enter another bear market in 2010.

The stock market timing model on MTR Investors Group was originally based on the 4% Model discovered by Ned Davis. This model was made widely know by Martin Zweig in his book "Winning on Wall Street."

MTR Investors Group took the 4% Model and enhanced it to come up with the MTR Timing Model or
MTR-TM. This post visually compares the models and provides the 4% Model code that can be used in AMIBroker. The 4% Model code is very simple. It looks for a 4% change in the Value Line Arithmetic Index using current day close vs. the same day prior week close. The original model used Friday vs. Friday of the previous week. If the index is up 4% BUY if is down 4% go SHORT or go to cash.

Ned Davis 4% Model - January 2008 - June 19,2009

Just when you thought you heard about the last major scam on Wall Street... 

Mark posted a comment on the forum regarding a white paper that discussed how companies are able to scalp a penny, or two, or three from each trade. Basically at no risk. The white paper showed that this is done by "Automated Market Makers" or AMM.

These are computer applications that make the market, where people on the exchange floor (Specialists) use to make the market (or trades). Now programs have algorithms that search out pending trades to inflate prices by pennies, buy it, short it, then drives the stock down. Then the next AMM member comes along and picks it up cheaper, turns around an dumps it and make a penny or two. Really you have to read the white paper to get it all. 

High frequency trading is in the news again. The common investor is getting scalped for pennies (or more) on each trade while companies like "Golden Slacks" (Cramer-ism) makes money each day in the market with little or no risk. 

Any investor, trader, speculator that knows of this should email the SEC and complain about it. It is not about faster computers, but it is about SEC allowing companies to have these fast computers right at the exchange. The software opens and cancels trades in milliseconds to see what is out there.

This is theft. I called into NPR on the Diane Rehm's show and asked a group of investment experts about this issue. They laughed and said it is about competition. I was not able to make a follow up comment, if I was I would have told them they were incompetent.