Why Is No One Buying UGA?

December 02, 2009


Lead And Copper Too

It’s not just gasoline. If you look at S&P’s chart of the total return performance of various commodities on a year-to-date basis, you can see where investors are missing out:


ETNs for the top two-performing commodity markets, lead and copper, have just $14.5 million and $145 million in assets between them, respectively.

Lead doesn’t surprise me: It’s an obscure commodity mostly known for poisoning young kids, and the ETN (NYSEArca: LD) trades with spreads a mile wide. But copper is a major market and the ETN (NYSEArca: JJC) trades well; I’m surprised it’s captured such a small share of assets. (Ditto sugar, where the iPath Dow Jones – UBS Sugar ETN (NYSEArca: SGG) has just $26 million in assets, despite Jim Rogers pushing sugar as an investment for more than a year now.)

Let me be absolutely clear: I’m not saying investors should rush out to buy UGA, SGG, JJC or LD. Far from it. Chances are they are probably closer to the top than the bottom.

But I am saying that many investors approach the commodities market naively. They fail to consider the structural challenges facing certain commodities like natural gas, and ignore major markets like gasoline where there might be more interesting opportunities.

Commodities Diversification Is Back

One unrelated point from S&P’s report: The diversification benefit for commodities is back.

According to S&P, the correlation between the S&P 500 and the S&P GSCI Index is returning to more normal levels. After peaking at .76 earlier this year—the highest reading since October 1980—it’s since retreated back to 0.44.

S&P includes a nice chart showing that the correlation between these two important indexes tends to be mean-reverting, suggesting that that 0.44 should narrow further in coming months.

Interesting stuff.



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