Commodities

[stjoe1]

I used to be vested in commodities ETF but the lack of dividends, contango and backwardation, and high expense ratio compared to equity ETFs made it a losing proposition.

Then I used a screener to determine whether there were any equity ETFs that had some correlation with various commodity prices. There was 1 equities market that strongly correlated with oil as well as other markets with weaker correlation.

The market? Norway (yield 2.6% less withholding). Just nice that there is zero brokerage commissions if you buy NORW on Interactive Brokers. My other commodities proxy? Australia (yield 4.5% less withholding)

you mean you buy country ETF Norway and Australia to have exposure to commodities? how can it be?

can it be just coincidence that NORW has correlation with oil, as I notice the industry breakdown of NORW, energy is only 29%

 

[limster]

you mean you buy country ETF Norway and Australia to have exposure to commodities? how can it be?

I got the idea from listening to a fund manager give a presentation on how going long Krone and Ruble were essentially bets on oil prices.

As to how can it be, you can backtest the correlation between oil prices and Norway stock market. The correlation is not as strong as a pure play on Krone but in return for the lesser correlation I get dividends...

In reply to TS question, you can buy DBC using Standard Chartered or Interactive Brokers.

 

[Shiny Things]

Hello guys,

What is your view regarding commodities? I think they have bottomed out. I just invested 30K in Schroders AS commodity fund via Fundsupermart. Is this a good choice to play the commodities rebound, if any?

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I think "commodities" aren't an indistinct lump; there are different markets with different dynamics.

Ags: Wheat and beans are near record highs: there was a huge rally in both of those over the last few weeks, blowing up a lot of CTAs that were short wheat and bean futures. I wouldn't say those have "bottomed out"; if anything I'd say they're more likely to have topped.

Softs: sugar and cocoa, sure, I'll give you those.

Crude is off its lows but it still doesn't look tremendously healthy; precious metals are going to get sicker as real interest rates head higher; iron ore seems rangebound.

Anyway, I don't think there's any particular "commodities rebound" (I think it's mostly a question of where you think interest rates and inflation are headed), but even if I did, I don't think that Schroder fund is a particularly good way to play it. You can get the same exposure from owning commodity futures, or commodity ETFs, without paying the gargantuan management fees and the performance fees that that fund charges.

 

[revhappy]

Thanks guys, I agree with you. I will sell this fund today and study more etf options available.

So does it make sense to stick with FSM with only SG and HK listed counters or should I move to interactive brokers?

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[limster]

www.etfscreen.com

EWA - Australia
EWS - Singapore
SPY - USA
NORW - Norway

DBA - agriculture
DBB - base metals
DBC - commodities


Which of the 4 equity markets has the highest correlation to DBC - Norway

Which of the 4 equity markets has the highest correlation to DBB - Australia

Which of the 4 equity markets has the highest correlation to DBA - Norway (not a significant correlation).

Correlation is an additional tool that the asset allocating investor should use. By itself it doesn't tell you whether the market is undervalued or overvalued. It also doesn't tell you which one will go up more. However, I will pick the one that gives more dividends


Bonus round, correlation of NORW, XLE and USO. The correlation is also significant:

 

[revhappy]

You are comparing 2 completely different asset classes. Commodities don't give dividends, but they have advantages like commodities cannot go to zero, but commodity companies can go bankrupt if commodity prices go below the cost of manufacturing. Also if interest rates rise shale oil companies are junk bond companies, they will go bankrupt even if oil eventually rises.

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[limster]

You are comparing 2 completely different asset classes. Commodities don't give dividends, but they have advantages like commodities cannot go to zero, but commodity companies can go bankrupt if commodity prices go below the cost of manufacturing. Also if interest rates rise shale oil companies are junk bond companies, they will go bankrupt even if oil eventually rises.

It seems like you don't know what an ETF is if you think the price of XLE can go to 0? I guess thats why you bought unit trusts in the first place. That's ok, we are all here to learn. After you learn what is XLE, you can tell us whether it can go bankrupt and go to 0.

And have you compared the performance of Schroders unit trust to XLE over 5 years? The unit trust dropped 65% in US$ while XLE is basically flat except that it also gives 3% dividends every year. And you are more worried about XLE going to zero?

I am also vested in a tiny amount of Shell, and it has already gone up 30%. But I bought it for dividends not capital gain, so I'll just hold onto it. As for its chances of going to 0, I guess its possible, but an ETF like XLE? (Shell is not in XLE by the way).

 

[stjoe1]

www.etfscreen.com

EWA - Australia
EWS - Singapore
SPY - USA
NORW - Norway

DBA - agriculture
DBB - base metals
DBC - commodities


Which of the 4 equity markets has the highest correlation to DBC - Norway

Which of the 4 equity markets has the highest correlation to DBB - Australia

Which of the 4 equity markets has the highest correlation to DBA - Norway (not a significant correlation).

Correlation is an additional tool that the asset allocating investor should use. By itself it doesn't tell you whether the market is undervalued or overvalued. It also doesn't tell you which one will go up more. However, I will pick the one that gives more dividends


Bonus round, correlation of NORW, XLE and USO. The correlation is also significant:

Interesting idea.. I will look into this further..

 

[beefjerky]

have you considered Commodity ETF A0W on sgx? besides the low volume, its expense ratio is only 0.35%

 

[revhappy]

Thanks guys, I agree with you. I will sell this fund today and study more etf options available.

So does it make sense to stick with FSM with only SG and HK listed counters or should I move to interactive brokers?

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Sold the fund for a profit of 2% or $600 on an investment of $30K. I guess, I was lucky This is my first short term trade since a long time. I know how stocks work and I know how unit trusts work. I just dont know about the ETFs. I need to spend a lot of time to learn about the ETFs and various markets. Thanks guys.

 

[Mecisteus]

If you bought XLE, you could be up 3-4%.

The Sales Charge was ripping you. Or did you buy under a 0% SC promotion?

 

[revhappy]

If you bought XLE, you could be up 3-4%.

The Sales Charge was ripping you. Or did you buy under a 0% SC promotion?

There is no sales charge on FSM. There is only a platform fee. Actually for short term trading 0 sales charge and a platform fee is better. XLE is a different animal, it is energy ETF. This schroder fund has all kinds of commodities including agricultural.

BTW, XLE is not listed on SGX or HKEX. Should I just go ahead and open an account with Stan Chart?

 

[revhappy]

For those of you who ridiculed me for investing in Unit trust. Think about this. ETFs are designated in USD. My base currency is SGD. For example SGD in my OCBC 360 account gives me interest. Currency conversion at SC is 1-2% is very expensive and actually defeats the purpose of cheap management fees in ETFs for short term trading. To make a short term trade, I will have to convert to USD first and then there is a commission on the trade buy and sell and then keeping the redemption in USD is useless and I will have to convert it back to SGD. A Unit trust designated in SGD without sales charge is much cheaper than doing this.

The unit trust is SGD hedged somemore.

 

[Asphodeli]

I used to be vested in commodities ETF but the lack of dividends, contango and backwardation, and high expense ratio compared to equity ETFs made it a losing proposition.

Then I used a screener to determine whether there were any equity ETFs that had some correlation with various commodity prices. There was 1 equities market that strongly correlated with oil as well as other markets with weaker correlation.

The market? Norway (yield 2.6% less withholding). Just nice that there is zero brokerage commissions if you buy NORW on Interactive Brokers. My other commodities proxy? Australia (yield 4.5% less withholding)

Good find on Australia. Dividend isn't as big a hit compared to Norway.

 

[limster]

Good find on Australia. Dividend isn't as big a hit compared to Norway.

I have never understood why people are so confident of Singapore economy and currency value that they want their portfolio to be hedged to S$ and want to minimise their exposure to foreign currencies of countries with much bigger economies (and more natural resources) than Singapore. [this is discussed in other threads, about many SG bloggers who have 100% Singapore exposure]

I am going the opposite and trying to reduce my exposure to Singapore and increase my international exposure as a hedge/insurance.

I also don't mind having the foreign currency exposure as getting a 2nd retirement/holiday home in a cooler climate is also appealing. Not sure what the temperature in Singapore will be when I retire.

 

[revhappy]

I have never understood why people are so confident of Singapore economy and currency value that they want their portfolio to be hedged to S$ and want to minimise their exposure to foreign currencies of countries with much bigger economies (and more natural resources) than Singapore. [this is discussed in other threads, about many SG bloggers who have 100% Singapore exposure]

I am going the opposite and trying to reduce my exposure to Singapore and increase my international exposure as a hedge/insurance.

I also don't mind having the foreign currency exposure as getting a 2nd retirement/holiday home in a cooler climate is also appealing. Not sure what the temperature in Singapore will be when I retire.

After Trump came to office there was extreme pessimism about Singapore economy mainly because of the perceived rollback of globalization and trade. But that was overdone and as has been evident recently, USD is plummeting. I think SGD still is undervalued considering AUD, CAD are at 1.26, SGD has a long way to go to close the gap. Even the shitty NZD is now more valued than SGD. Not long ago, AUD and SGD were at parity and commodities are still at the bottom. NZD was 10% below SGD. My target for SGD is 1.3 to USD atleast.

 

[revhappy]

Hello guys, what do you think about buying XLE etf now? Oil is only 10% below Jan 2017 but XLE is almost 20% down even now. Also USD is down some 6% compared to SGD. So if you are converting SGD to USD now to buy XLE, you are getting it some 25% cheaper than beginning of the year. Oil prices seem set to rise as Saudi will make sure oil goes high for the Saudi Aramco IPO.

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[stjoe1]

my personal view: oil will still be used as main energy source for some time .. adoption of alternative renewable energy will take some time to be used as mainstream source ..

i have some investments in big oils and SXLE .. if you want to invest in XLE, I recommend to go with SXLE listed ion LSE and with auto reinvestment of dividend and lower dividend withholding tax

 

[revhappy]

Thanks stjoe1. I didn't know about this US withholding tax on dividends. Good that you told me.

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