“May you live in interesting times.”
–Ancient Chinese proverb and curse
For commodities investors, these are certainly interesting times. As ETFs and ETNs have made exposure to nearly every commodity attainable for every investor, understanding the drivers of commodity prices, as well as the mechanisms underlying various exchange-traded products, has never been more important. Next month, industry experts, analysts, institutional investors, hedge fund managers, and advisors will converge on New York to discuss the current state of the commodities markets at the 2nd Annual Inside Commodities Conference.
The conference will includes discussions on both the macro issues driving long-term returns, as well as the most compelling (and some of the most controversial) individual opportunities.
Interesting Times Indeed
According to the National Stock Exchange, commodities exchange-traded products have seen cash inflows of more than $22 billion so far in 2009, a testament to the popularity of this asset among all types of investors, ranging from hedge funds to individuals. But this staggering growth has come with increased scrutiny that may threaten the very existence of many exchange-traded commodity products. The Commodity Futures Trading Commission (CFTC) is expected to implement positions limits on futures contracts later this year, a move that may restrict further growth of existing ETFs and even require some to cut back their holdings.
In addition, exchanges are apparently cracking down on accountability limits, restrictions on the size of positions in commodity contracts held by a single issuer. Accountability limits may have been behind the shuttering of the PowerShares DB Crude Oil Double Long ETN (DXO) last month. Although the extent to which existing regulations will be enforced and new rules will reach remains to be seen, it is entirely possible that the fourth quarter of 2009 will see a wave of fund closures.
The impact of this uncertain regulatory environment can have material impacts on commodity investments. In recent months, the premium on UNG has surged from almost zero to 20% and back down, as investors have tried to interpret the latest news from both issuers and regulatory agencies.
The Inside Commodities Conference will include an update from Walter Lukken, the former Acting CFTC Chairman, on the financial reform process.
Cure To Hyperinflation?
Physically-backed precious metals ETFs have seen huge surges in demand this year as investors around the world have sought out safe havens, fearing that the massive stimulus plans implemented over the last two years will sent inflation skyward in the near future. Gold recently broke through the psychologically-important $1,000 per ounce mark, and we’ve seen two of the more successful ETF launches in recent memory in the form of physical gold and silver funds from ETF Securities.
Gold and silver ETFs are likely to be hot investment topics in coming months as investors weigh the strength of the recovery against long term consequences of recent government interventions. Thoughts on precious metals prices are mixed, with some investors believing that we’ve only seen the beginning of a massive price run-up.
The keynote address, titled “The Current State of the U.S. And Global Economy: What’s Next?” will be delivered by Nouriel Roubini, the chairman and co-founder of RGE monitor. Other highly-anticipated participants include John Hyland, chief investment officer for the United States Natural Gas Fund (UNG), the commodity product that has been at the center of the debate over need for increased regulation. Other industry experts scheduled to present include:
- Derek van Eck, CIO of Van Eck Global
- David Greely, Vice President and Senior Energy Economist at Goldman Sachs
- Ashmead Pringle, President and Founder of Greenhaven Commodity Services
For a complete list of the topics and participants, click here.
Exchange traded commodity products can be very powerful investment tools for both financial advisors and individual investors, particularly in the current economic environment. Commodities as an asset class can offer valuable benefits within a portfolio – as providers of both diversification and return enhancement – and exchange-traded commodity products can be an efficient means of gaining exposure. For financial advisors looking to expand their knowledge of available ETCs or individual investors looking to ways to profit from movements in commodity prices. But the numerous complexities surrounding these products, particularly in the current environment, can make some investors uneasy. For anyone interested in learning more about commodity investing and how to navigate the complex environment, the Inside Commodities Conference is a “must attend.”
To sign up for the Inside Commodities Conference, click here. I’ll be reporting live from the event, so if you’ll be in attendance and would like to meet up to talk ETFs, please feel free to get in touch!
Disclosure: No positions at time of writing.