You Knew They Were Coming

June 08, 2007

My only question is "what's taken so long?"  With commodities sectors long launched in Europe and the structural issues already having been overcome in the U.S., it's amazing these types of products are not already trading, beyond broad commodities baskets, gold, silver and the four PowerShares "supersector" baskets (agricultural, base metals, energy and precious metals).

With the general move in the exchange-traded products industry toward every more thinly sliced market segments, and toward more volatile...and more exotic products, you knew they were coming.  It hasn't really been regulatory roadblocks stopping things...more just a coincidence of circumstances.

The obvious three candidates, are those who already have brought products to market - Deutsche Bank and iShares, with broadly based commodities products trading in the U.S., and ETF Securities - the issuer of the first commoditites sectors (ETCs they call them) trading in Europe.

You get the feeling this space is going to be in for a land grab in the next couple of years.  It's one of the few areas that I feel pretty confident about there being some built in upside in terms of demand - and some interesting new space for investors.  Check out this blog I wrote recently sort of giving the lay of the (commodities) land in the U.S., particularly in the ETN space, which I strongly feel has the potential to completely alter the exchange-traded funds business.

And aside from commodities, what are the other market opportunities? Well if what's in the cooker at a number of the product issuers is any guage, it's more strategy-focused ETFs, some gimicky and equity only, but many beginning to dip into more exotic, and traditionally institutional spaces, like buy writes, volatility products, 130/30's and hedge fund replicators. 

Some of those areas you'd think have good promise.  Of course active ETFs have been a long time coming.  And there are 3 or 4 serious players working very hard on making that happen.  Add some more international size and style to the mix, and more variety on fixed income - and that's pretty much what you're looking at. 

I guarantee you though, that there's something out there that you've never even thought of in terms of investment or hedge, and certainly in terms of product structure that will dazzle us all.  And you may even think you need it.  On the big idea side, I've always liked the Macros, though the products to date have stuggled.  I think all of that ("lifetime" hedges/insurance)  is all coming. It's only a matter of time.

Good luck keeping all of these new products straight. And if you can't keep them straight, I'd recommend keeping them out of your portfolio and focusing on basic asset allocation, low turnover and low fees.  Like good fundamentals in basketball, the kind LeBron James practices (ouch! last night though) the basics of smart investing will never go away.

And Hougan - I can't believe you just sit there like a little girl after all the shots I took at you in yesterday's blog.  If you can't stand the heat, maybe we should get you out of the blogging kitchen. He's probably in front of a mirror fixing his hair and waiting for a phone call from CNBC, or practicing what he'll say to Eleanor Laise.  Pretty boy.


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