As much as flapjacks and a smoke don't go together, neither do any of these topics relate to each other.
The oil ETF issues and questions that sprung up in the last few days (at least on this blog) raise an interesting point that I have addressed before about keeping things simple. I never considered adding any of the oil ETFs for energy sector exposure.
A big thing in my thought process is finding the best tool to capture various effects. For me the best thing is probably going to be simple, the caveat being that each person might have a different idea of simple.
When I write about a new fund (mostly in my TSCM stuff) I always say the same thing about giving something new some to trade to see what it actually does in the market, backtest grooviness notwithstanding.
Whatever is the best way to describe the current state of the Macroshares, they are only one month old. In general terms I am surprised that a problem with any ETF would manifest itself after such a short time but either way it makes the point.
If you are managing your own portfolio and want energy exposure it does not get much simpler than an oil stock. Recently I heard that energy stocks have a 0.95 correlation to crude oil. That number seems too high to me but there is obviously some connection.
One thing that kept me away from the oil ETFs was some awareness of what I don't know. Being in touch with supply and demand for oil (something I am comfortable with) is much different than understanding the dynamics and inner workings of the futures market for oil which is a lesson some folks have learned the hard way.
It is very unlikely that you need every new thing that comes along. While I believe this, a few new things will add value and utility to your portfolio.
StateStreet listed a new ETF yesterday called the SPDR MSCI ACWI ex-US ETF which trades under the ticker CWI. I got an email from StateStreet to announce it but the link to the information was a dead link and the regular info page on StateStreet.com did not really have anything but the prospectus did (have fun).
It seems like it will be similar to iShares EAFE (EFA) but it includes Canada and EFA does not. EFA has a little (just under 3% per the iShares site) emerging market exposure but CWI might have more but I did not find the exact info on the website. Countries in CWI include Argentina, Czech Republic and Pakistan. I don't know if this will turn out to be better than EFA or not but you can check it out for yourself.
I heard this last night on CNBC Asia; Singapore Airlines wants to outsource its call center to India. Outsourcing is an issue in Singapore? I would not have guessed.
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6 comments:
Roger give some suggestions of FUNDS that service the countries you have mentioned in prior posts? You say that you own several? Whom are they??
Thanks!
countries - mentioned in prior posts
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maybe Closed End CH Chile Fund
maybe IRL Closed End for Ireland
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Norway: no ETF - perhaps Individual stocks like Statoil or Norsk Hydro
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Why would you indirectly suggest owning a company oil stock over an ETF?
Have the memories of ENRON faded that quickly within the market?
I am purposely trying to get out of company stock and get into a commodity for a portion of my portfolio.
I'll give you an example: South Korea.
You can buy the iShares product, EWY, which yields less than 1% and has 20% of its holding in Samsung.
Another option is to pick a couple of individual companies, say for example POSCO (PKX, yielding 1.3%) and SK Telecom (SKM, yielding 3%). Here's a chart comparing the 3:
http://stockcharts.com/charts/performance/perf.html?EWY,PKX,SKM
Hi Roger,
Thank you for posting the "counterpoint" to your article. You have given me food for thought.
First of all, when you write "standard deviation", I am trying to figure out what you mean by that - STD from what? The price of crude oil itself, I assume? Yes, if the OIL ETF's don't track the price of oil, then that IS problematic.
I will agree to that point.
I have noticed some graphs showing more price decline than price upswing when oil moves.
My reference to ENRON was probably a bit overdramatic (leaving you puzzled) but it illustrates perhaps the risk of a portfolio being entirely in "companies/Corporate America". (or Corporate China or Corporate Europe and so on).
Quite simply, as an average investor, I can't be privvy to but am exposed to:
1. Management changes and how the market will view that.
2. Insider trading (yes, it still happens)
3. Other unethical and/or non-transparent practices that companies engage in.
I don't know how prevalent it is (you say it is infinitely statistically small and imply Corporate America as a whole are beams of ethics and righteousness) but over the years, I have decided to learn lessons from ENRON, Worldcom, Arthur Anderson and so on.
With a commodity ETF, the way I see it, I just won't have that exposure and risk.
To me, having my portfolio in Corporate America and Corporate International. . .you are just recommending I transfer my assets from one corporation to another Corporation.
How truly diversified is that in thinking (if diversification is important to you)?
Maybe more importantly, is the risk worth the reward?
(rhetorical question)
In closing, as far as the worrisome STD, I have meditated on that. I think it may just be the "price of doing business" in a commodity. From what I can tell, this discrepancy involves the cost of doing business in the "options" market as these options expire and roll over.
Could I do business in options over the long term of my investing career? I don't think so. . .I don't know what I am doing.
Indeed. . .there may be a better way to "do business" ( a higher management fee maybe? locking the oil in vaults and sellling every 90 days?) rather than have it reflect the share price but for now, I believe I need exposure to that commodity in my portfolio and less exposure to "Corporate America" and "Corporate China."
So, for now, I will choose to ignore your recommendation that I place my faith in a company and go with an ETF and just concede to the fact, it is like a mutual fund with a high management fee of 2 or 3%.
- Scanner (having blogging in problems)
How Much Does Flapjacks Cost And What Is The Cost Of The Grams ?
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