Track Metals Not Energy
- Posted by Greg Harmon
- on November 21st, 2012
When it comes to tracking ETF’s the there are winners and losers. The Equity Indexes S&P 500, Russell 2000 and NASDAQ are tracked very well by the $SPY, $IWM and $QQQ. Maybe because there is a lot of liquidity in these ETF’s, and the Indexes are not easily traded outside of the Futures. Maybe they have been around long enough for the fees to be reigned in. Whatever the
case they are a good fit. But when you get out side of these the tracking ETF’s are not all created equal. Take a look at the metals. The chart for Gold above shows the Futures and the ETF $GLD. On a first glance you cannot tell the difference between the too with the Futures looking more like a 2 day Simple Moving Average. The chart below for Copper Futures against the ETF $JJC is similar
but with a little more dispersion. But when you compare these to the energy charts it gets crazy. Look at the comparison for Crude Oil Futures and the ETF $USO in the chart below. After tracking well up through the fall into 2009 the Futures have been up big over the last 3 years with the ETF running sideways. Hmmm. But this is not an isolated case. The last chart, Natural Gas Futures and
the ETF $UNG is just as bad. the general downtrend is the same but look at the bump in eh Futures with a steady decay in the ETF. You could run a lot of quantitative analysis on fees on each fund and determine the liquidity of the underlying and perhaps come up with a solid explanation for this. For me it is enough to know that they do not track well and only use them for very short term purposes if at all.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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