Top Performing ETFs on AMEX

Trade Commodity via ETFs listed on AMEX

With the recent lows of Crude Oil and highs of Gold prices, and with recent spate of inappropriate corporate governance leading to total erosion of stock prices, it may be interesting to look at commodity ETFs listed on AMEX, especially when we have limited access to buying Futures, and if you fear of the expiration period of the Futures.

There are tons of ETFs listed on AMEX, and trading is very active, unlike those listed on SGX, which is pretty premature and trading volumes are low. I have put up 3 ETFs live prices on my site, namely United States Oil Fund, PowerShares DB Crude Oil Double Long ETN and SPDR Gold.

All these funds seeks capital appreciation and tracks Crude Oil and Gold prices pretty closely. With prediction that Crude Oil prices being on the uptrend on a long term basis, these ETFs provides the chance to be invested in these commodity, yet without the worries that prices will not appreciate to your expected level before expiration like in Futures.

However one thing to note is ETFs that trade oil futures, which allow investors to lock in the cost of oil they plan to buy later, face unique challenges. During bullish times, when oil prices are expected to rise, funds can end up paying contract prices that are higher than spot prices, a situation called "contango." Each time an oil ETF rolls contracts forward a month during periods of contango its return is eroded.

Generic crude oil contracts for May 2009 are trading at $48.46 a barrel on the New York Mercantile Exchange. The price rises to $55.04 for October 2009 contracts and $60.20 for May 2010 contracts. Each time an oil ETF rolls contracts forward a month, its return is eroded.

Thus there still exists a risk that ETF prices may not track commodity prices as closely as it is expected.

INVESTORS SHOULD NOTE: There are two types of ETFs -- those backed by physical commodities in storage, such as the largest precious-metals ETFs, and those that aren't, says Maister. With GLD, investors buy shares that track gold, minus 0.40% for expenses: "They buy physical gold, stick it in a vault and charge you 40 basis points a year. The 40 basis points is the only tracking error."

It's harder to store oil and grains indefinitely. So ETFs that include these commodities access the market through futures contracts, say Maister and Burns. But this means more potential for a tracking error, adds Maister. ETFs utilizing futures are likely to show greater deviations from changes in spot prices.

Sen notes that even if oil goes up, investors can lose out periodically, when nearby futures are more expensive than the next month out. An ETF may have to sell the front month at a lower price than it pays for the next during rollover. The plus of such ETFs is that they let those with less capital invest in oil without going it alone in futures, and without the worry of stock-picking the wrong name.

Investing in Exchange Traded Fund - ETF

With major indices and commodities falling to one of the all-time lows, it will be a good time to take a look at investing in one of the derivatives - the Exchange Traded Fund or in short, the ETF.

Many people will panic during a market downturn, and do not know which stock will be the next to be hit, but most of these people also like to make good use of this downturn to buy stocks at a bargain price. A good alternative will be to look at ETF.

What is ETF?

1. It is a investment fund listed on a stock exchange.
2. It tracks the performance of an index, commodity or bonds.
3. It functions the same way as a normal stock, and can be bought or sold via your broker like a stock.

In short, it inherits the PROS of both stock and unit trust.

Benefits

1. Diversification - It allows a wide exposure via a single instrument, e.g buying the STI ETF allows exposure to the STI which comprises of 30 stocks.
2. Exposure to inaccessible market - It allows exposure to say Taiwan and India markets via the Lyxor Taiwan and IS MSCI India ETFs, where normal investors normally have no means to buy a stock in these countries.
3. Lower cost - Instead of upfront charges of 3-5% for unit trusts, ETF will only incur the usual brokerage commissions of approximately 0.5% and clearing fee of 0.04%.
4. Transparency & Flexibility - ETF can be bought or sold like a stock during normal trading hours and its live prices can be easily accessible, unlike unit trusts where investors can only buy or sell at the end of the day.

Risks

1. Market Risk - It falls and rise like a normal stock
2. Foreign exchange - Most ETF are denominated in USD and thus a fall in US/SGD will result in a loss in exchange rates.
3. Tracking Error - There is a slight risk that the ETF will not be able to replicate the underlying exactly, though this is not expected to happen.

Fair Value of ETF

The estimate of the fair price of an ETF will be its NAV (Net Asset Value) per unit. The NAV per unit is the total value of all assets minus liabilities in the fund, divided by the number of outstanding ETF units.

NAV is calculated once at the end of each trading day. An estimate of the NAV, called indicative NAV (iNAV) is also calculated periodically throughout the trading day. You can find the NAV value of those ETFs traded on SGX by going into the "General Announcements" of each ETF

I personally do not find these NAV of any significant to an investor's investment decision. Since you are buying into a portfolio of stocks, it should usually be for middle to long term investment, thus just buy when the underlying market is down. You will reap the returns when the market is up in a few years time.

SGX ETFs

Name	Underlying	Listed	Lot	Bank	Code
ABF S'pore Bond Index Fund	iBoxx ABF S'pore Bond Fund	31 Aug 05	1000	DBS	ABF SG Bond ETF
CIMB FTSE ASEAN 40	FTSE/ ASEAN 40 Index	21 Sep 06	100	CIMB	CIMBFTASEAN40100US$
iShares MSCI India ETF	MSCI India Index	15 Jun 06	100	Barclays	IS MSCI India 100US$
Lyxor China Enterprise	Hang Seng China Enterprise Index	19 Oct 06	10	Lyxor	Lyxor China H 10US$
Lyxor Commodities CRB	Reuters/ Jefferies CRB Index	18 Jan 07	10	Lyxor	Lyxor CMDTY 10US$
Lyxor Hong Kong	Hang Seng Index	1 Mar 07	10	Lyxor	Lyxor HangSeng 10US$
Lyxor MSCI AC APAC ex Japan	MSCI AC Asia Pacific ex Japan	19 Oct 06	10	Lyxor	Lyxor Asia 10US$
Lyxor MSCI Korea	MSCI Korea Index	7 Dec 06	10	Lyxor	Lyxor Korea 10US$
Lyxor MSCI Taiwan	MSCI Taiwan Index	1 Mar 07	10	Lyxor	Lyxor Taiwan 10US$
Lyxor MSCI India	MSCI India Index	5 Nov 08	10	Lyxor	Lyxor MS India 10US$
Lyxor MSCI Thailand	MSCI Thailand Index	5 Nov 08	10	Lyxor	Lyxor Thailand 10US$
Lyxor MSCI Malaysia	MSCI Malaysia Index	5 Nov 08	10	Lyxor	Lyxor Malaysia 10US$
Lyxor India Nifty	S&P CNX NIFTY index	28 Mar 08	10	Lyxor	Lyxor India Nifty 10
Lyxor MSCI Apex 50	MSCI Asia APEX 50 Index	5 Nov 08	10	Lyxor	Lyxor APEX50 10US$
Lyxor ETF Commodities CRB Non Energy	Reuters/Jefferies CRB Non-Energy index	5 Nov 08	10	Lyxor	Lyxor CRBNonEng 10 US$
streetTracks Gold Shares	Gold Spot Price	11 Oct 06	10	State Street	GLD 10US$
streetTracks Straits Times Index Fund	Straits Times Index	17 Apr 02	100	State Street	STF ETF