Exchange-traded products have become the preferred instrument for many investors looking to add core, as well as tactical, commodities exposure to their portfolios. The “toolbox” continues to expand as investors have multiple options available to them, with some funds focusing in on a specific commodity, while others offer broad-based exposure. One of the oldest commodity-basket ETPs on the market is the iPath S&P GSCI Total Return Index ETN (GSP), which has accumulated a little over $100 million since its launch in mid-2006 [also see 50 Free Web Resources For Commodity Investors]. GSP is similar to other broad commodity ETPs in many ways, however, its product structure and portfolio composition results in a unique risk/return profile that may attract some investors, while potentially turning away others.
The past few weeks have seen a fair amount of volatility in what is arguably the world’s most popular commodity. Crude oil had been on a tear, surging from $75/barrel to a peak of $102/barrel last week, marking an increase of over 35% in less than two months. But as Euro zone debt woes weighted down on the global economic outlook, crude took a major hit, losing over 6% in just a matter of days. But this result shouldn’t come as a major surprise given that crude features a relatively high correlation to equities, with a 0.75 relation to the S&P 500 over the trailing year [see also Crude Oil On Fire: Examining The Commodity's Rise].
As demand for alternative energy has soared in recent years so too has investor interest. Solar energy, while one of the youngest energy sources on the market, has quickly become a popular holding for investors of all kinds. The underlying thesis is appealing; solar has grown an average of 39% in each of the last ten years and is by far the fastest-growing energy source in the world. Despite its 73% expansion in 2010, solar is still relatively unexplored and accounts for a very small part of energy consumption across the world. But plans to expand the industry and new innovations make it one of the most enticing growth opportunities currently available [see also 25 Ways To Invest In Alternative Energy].
Arguably the world’s most popular commodity investment, crude oil, has been subjected to a wild 2011. Recently, the fossil fuel has been making headlines for its significant gains, though just a few months ago the opposite was true. Now that crude recently broke through the triple digit mark (at least temporarily), investors are trying to figure out why the commodity has surged in recent weeks. Given all of the economic turmoil around the world and the volatility in equities, it may seem surprising to see crude appreciate so rapidly, but a quick overview of the year sheds light on its recent tear [see also Crude Oil Guide: Brent Vs. WTI, What’s The Difference?].
With the rapid development of the exchange-traded product industry, many investors now have the ability to add broad-based commodity exposure to their portfolios. ETPs are proving to be the most efficient means for achieving such exposure by offering low expense ratios, diversification, and more trading flexibility. One ETF offering broad exposure to commodities is GreenHaven’s Continuous Commodity Index Fund ETF (GCC), which utilizes a unique methodology of equal weighting and an addition of a Treasury Bill component. GCC distinguishes itself from other traditional broad-based ETPS in that its equally-weighted structure results in a unique risk/return profile. It offers a significant amount of exposure to livestock and agriculture whereas most broad commodity ETPs have their largest allocations invested in energy.
Natural gas investing is an incredibly popular and active sector of the commodity world, as its high volatility as well as robust growth predictions make it a candidate for all kinds of investors. As a trading tool, natural gas tends to exhibit violent daily swings with high and liquid volumes. While this can lead to significant losses, for those who play their cards right, trading natural gas can make for a nice short term reward. For the more traditional “buy and hold” investor, there are still a number of options that may not directly invest in the commodity, but offer significant exposure under a safer structure [see also 25 Ways To Invest In Silver].
This week featured a fair amount of volatility as markets weighed in on European woes as well as the worsening debt situation at home. Congress has just days to pass a massive budget deal, but each day that goes by brings more pressure on commodities. This past week saw crude oil smash through the century mark, though it fell shortly thereafter, for the first time in months. Though crude has been on a tear as of late, its high correlation to equities paints an uncertain short-term outlook for the precious fossil fuel. Gold had yet another frustrating week as its returns remained highly correlated to stocks, taking away the safe haven appeal that many are drawn to.