Posts for Ticker ‘GAZ’

ETFs/ETNs Becoming Hybrid Closed-End Funds (USO, UNG, DBO, DXO, GAZ, GSG, GS, MS, GLD, SLV, JJC, FAS, FAZ)

Two months ago it was a carnal sin to suggest that certain exchange-traded funds or notes which track commodities would start trading more like a closed-end fund based upon supply and demand moves in shares caused by in-flows and out-flows of orders rather than solely by the direction of the prices of underlying commodities.  It has been our ongoing prediction that many commodity ETF/ETN products (and maybe some leveraged products as well) will become more like closed-end funds. Yet here under new regulations that have not even become gospel, we have seen new share issuances either denied or withdrawn from some of these ETF or ETN products.  And we are getting to see a premium in pricing to boot.  The United States Natural Gas Fund LP (NYSE: UNG) is the most classic example out there.  This ETN was at a 15% to 16% premium to the actual gas futures as investors are choosing to pay higher prices just for the ability to get exposure in the portfolio in case these prices rise.  The UNG has already confirmed that no new shares would be issued currently, and it is now so large that it controls closed to 20% of the benchmark natural gas contracts.  Limitations of this sort will drive a free-market theorist nuts, but the other reality is that this can also create large directional price moves that have nothing at all to do with fundamentals.

It turns out that the PowerShares DB Oil Fund (NYSE: DBO) traded about 0.3% higher than its actual value in crude futures late last week, and limits to shares could exaggerate premiums and discounts.  And the PowerShares DB Crude Oil Double Long Exchange-Trade Note (NYSE: DXO) has also suspended issuing new shares. Barclays has also said that it would, at least temporarily, suspend new shares from being issued in its natural gas ETN called the iPath Dow Jones-AIG Natural Gas Subindex Total Return Exchange-Traded Notes (NYSE: GAZ).

Barclays also said that it would stop issuing new shares of the iShares S&P GSCI Commodity Index Trust (NYSE: GSG) once the outstanding amount reached 55.9 million shares. If our data is accurate on the latest count, that looks to stand at roughly 52 million shares.  This is a semi-diversified product that tracks about 24 different commodities in energy, agriculture, industrial metals, prcious metals and livestock.  It is energy dominant, but this was a much more diversified fund that decided to limit its size.  This one also has traded at a premium to its underlying value.
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Posted on: August 24, 2009 – 11:30 am in Commodities, ETF, Metals, Oil & Gas, Regulation, , , , , , , , , , , , ,

ETF/ETN Investors Have To Watch CFTC Speculation/Limitation Rules (USO, UNG, GAZ, OIL, JJC, GLD)

We are witnessing a pivotal moment in investing history.  After a decade of opening up all markets to the public and to more speculators with exchange traded products, some might soon be closed to speculators and investors alike.  If these markets are not closed off to the bulk of the public and investors and speculators, the writing on the wall is as obnoxious as street punk graffiti that access might become limited.  For better or worse, speculators are likely going to have a harder time.  This week marks a review by the Commodity Futures Trading Commission that could have a broad impact on exchange traded funds and exchange traded notes.  The exchange traded funds and exchange traded notes which track energy are the United States Oil (NYSE: USO) and the United States Natural Gas (NYSE: UNG).

iPath DJ AIG Natural Gas Total Return Sub-Index ETN (NYSE: GAZ) is one we do not cover as frequently because of its volume. It seeks the returns potentially available through an unleveraged investment in the futures contracts on physical commodities comprising the index plus the rate of interest that could be earned on cash collateral invested in specified T-Bills. The index includes the Henry Hub Natural Gas futures contract traded on the NYMEX.  iPath S&P GSCI Crude Oil Total Return Index ETN (NYSE: OIL) is another one we do not cover as much because of its volume. This ETN seeks returns that are potentially available through an unleveraged investment in the West Texas Intermediate crude oil futures contract plus the T-Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts.

iPath DJ AIG Copper TR Sub-Index ETN (NYSE: JJC) is not in energy, but it invests primarily in copper contracts and instruments that hopefully mirror the price of copper.  But do you expect that if regulation goes into curbing energy prices that the same effort would not be applied to metals and other inflationary hard goods?

The SPDR Gold Shares (NYSE: GLD) actually buys and sells gold bullion.  It is so large that it holds more gold than many large nations hold in reserves.  We could cover grains and other hard and soft goods as well.  The list almost feels endless.
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Posted on: July 7, 2009 – 12:46 pm in Commodities, ETF, Index, Oil & Gas, Regulation, , , , , ,