Sunday, January 18, 2009

Commodity ETFs and ETNs Update

Commodities took an absolute beating in 2008. This is true for all groups of commodities, including energy, precious metals, industrial metals, agriculture and livestock. After such a horrible sell off, is it time to start wading back into these markets?

There are now dozens of Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs) that allow US investors to speculate in the price direction of commodities. For the full list of funds including a rundown of expense ratios, volume, composition and more information, please see my previous post Commodity ETFs and ETNs.

Let's take a look at recent price action. Afterwards, I will provide my commodity picks and pans. Click on all charts for larger views.

USO (United States Oil Fund)
Current price: 29.88
52 week high/low: 119.17/27.23
% off high/low: -74.93%/+9.73%
4/10/2006 to Present

UNG (United States Natural Gas Fund)
Current price: 19.83
52 week high/low: 63.89/19.60
% off high/low: -68.96%/+1.17%
4/18/2007 to Present

The most heavily traded commodity in the world, oil, took an absolute beating in 2008 with the worst performance among commodities, down nearly 75%. Natural gas fared poorly as well, dropping nearly 69%. No end in sight to the price declines at this point.

GLD (SPDR Gold Trust)
Current price: 82.71
52 week high/low: 100.44/66
% off high/low: -17.65%/+25.32%
11/18/2004 to Present

SLV (iShares Silver Trust)
Current price: 11.11
52 week high/low: 20.73/8.45
% off high/low: -46.41%/+31.48%
4/21/2006 to Present

PTM (UBS E-TRACS Platinum)
Current price: 11.68
52 week high/low: 27.29/8.56
% off high/low: -57.20%/+36.45%
4/1/2008 to Present

Gold, the de-facto safe haven of commodities, has only fallen 17.65% from its peak and is well off its lows. With that being said, it is now firmly in a down channel. If gold breaks out of its trading channel, watch for new all time highs. Silver and platinum are precious metals but they have industrial purposes as well so they have not held up as well as gold. Both have bounced more than 30% from their lows, however, so watch these closely as they may have made their bottoms.

JJC (iPath Copper)
Current price: 21.46
52 week high/low: 58.40/17.97
% off high/low: -63.25%/+19.42%
10/30/2007 to Present

JJU (iPath Aluminium)
Current price: 22.14
52 week high/low: 54.16/22.14
% off high/low: -59.12%/+0.00%
6/25/2008 to Present

JJN (iPath Nickel)
Current price: 16.38
52 week high/low: 53.46/13.80
% off high/low: -69.36%/+18.70%
10/23/2007 to Present

JJT (iPath Tin)
Current price: 25
52 week high/low: 52.46/21.79
% off high/low: -52.34%/+14.73%
6/25/2008 to Present

LD (iPath Lead)
Current price: 31.13
52 week high/low: 62.20/23.87
% off high/low: -49.95%/+30.41%
6/26/2008 to Present

The industrial metals have all taken a huge pounding, with all being cut in half or worse. Lead has rebounded strongly, now off its low by 30.41%. Copper, nickel and tin have also rebounded some. Aluminium is by far the weakest of the group, now sitting at its 52-week low.

NIB (iPath Cocoa)
Current price: 38.88
52 week high/low: 48.23/30.21
% off high/low: -19.39%/+28.70%
6/25/2008 to Present

JO (iPath Coffee)
Current price: 36.55
52 week high/low: 49.79/32.40
% off high/low: -26.59%/+12.81%
6/25/2008 to Present

BAL (iPath Cotton)
Current price: 28.13
52 week high/low: 46.65/23.19
% off high/low: -39.70%/+21.30%
6/26/2008 to Present

SGG (iPath Sugar)
Current price: 42.39
52 week high/low: 57.65/36.36
% off high/low: -26.47%/+16.58%
6/25/2008 to Present

DBA (PowerShares DB Agriculture)
25% corn, 25% soybeans, 25% sugar, 25% wheat
Current price: 25.29
52 week high/low: 43.50/21.52
% off high/low: -41.86%/+17.52%
1/5/2007 to Present

The agriculture commodites have held up relatively well overall. Cocoa in particular had a shallow drop and has rebounded strongly. If it breaks above it's recent high, cocoa could climb much higher from here. Cotton also looks strong, now up 21.30% from its bottom. Sugar and coffee are starting to look strong as well.

COW (iPath Livestock)
67.9% live cattle, 32.1% lean hogs
Current price: 32.81
52 week high/low: 46.66/31.78
% off high/low: -29.68%/+3.24%
10/24/2007 to Present

Livestock has continued to fall and make new lows. This is among the weakest of the commodity groups.

Overall, commodities may still have farther to fall but some groups are starting to look quite strong. The precious metals have all bounced strongly and if gold breaks out they could all rise quickly. Industrial metals still look weak, with lead being the lone exception. Agriculture looks strong, particularly cocoa and cotton followed by sugar and coffee. If oil stabilizes, these commodities look like good bets. If oil rises, their case becomes even stronger.

You could take the opposing view, and look to invest in the weakest performing commodities, such as natural gas, aluminum and livestock. I think this is a mistake and you want to buy the stronger plays. I will provide an update in a month or two to see if my thesis turns out correct.

GLD (Gold)
LD (Lead)
NIB (Cocoa)
BAL (Cotton)

UNG (Natural Gas)
JJU (Aluminium)
COW (Livestock)


James said...

100% cash right now. When oil hits $25 a barrel and gold breaks $700 I will switch.

Anonymous said...

Deflation is strong right now. I dont think commodities is where you want to be. Agra is interesting but I would rather own ADM than the commodities. ETF's are interesting though.