I’m looking at my portfolio for a reallocation as one of my funds is closing mid-October (TZY). I have the typical stocks, bonds, real estate, and commodities. The commodities I have (CRSOX) are total dogsht. Year over year I seem to barely break even and more often than not lose money. Furthermore, there is no yield on this fund or any fund I quickly looked at. My money simply sits and does nothing. Now, back in the good ol’ days, commodities were seen as an inflation hedge. However, given the year over year decrease in value, I’m not so sure this is the case. Even worse, when the market is crashing, correlations ramp up to 1 as everyone sells everything; not just risky stuff. So what is the point? I have no skin in the game as a user of these raw materials and the money in the fund keeps on decreasing in value.
So I, a hacksaw CFA ask the non-hacksaw CFAs of AF to explain this concept to me.
Yes, in L3 we learn that commodities bring the efficient frontier up and to the left not only increasing expected return, but also decreasing standard deviation. This may be a good tidbit for a financial advisor to tell some muppet, but I’m having a real hard time seeing the true execution of this textbook fact.
Do you own a house? If so, your real estate exposure is a bit high. The small holdings in target date and commodities don’t really make sense at those levels IMO. My commodity exposure comes from simple oil and gas producers and an agricultural fund. Sure, there is some operational risk, but I get a healthy dividend cheque every month and the NAV of the assets tracks oil/fertiliser prices. I find most commodity funds are a complete joke when it comes to providing the claimed benefits, and the fees are huge. I’m mean, with CRSOX you’re paying 80bps for a negative Sharpe ratio with a high beta. That makes zero sense.
The small holding in the Target Date Fund has to do with Scottrades’ FRIP program. The dividends from all holdings get summed and shares of TZY used to be purchased. It was a nice autopilot with dividend income getting automattically reinvested into a balanced fund.
In my slight defense, I invested in CRSOX long ago and at the time it had a ~6% yield. About 2 years ago the yield was cut and has not been reinstated. Most commodity funds have higher management fees; even the ETFs.
Its too bad those ishares target date ETFs are closing. In my mind they are a great, low cost product. I guess they never gained traction.
I’m with you on commodities. I own GLD, but would stay away from the diversified commodity products. They don’t do much for you.
Your asset allocation looks fine to me, but REITs as a sector have been trading with yields, so you might underweight if you anticipate interest rate increases over the next few months/years. They’ve had a good run in 2014 until the last few weeks, not a terrible time to lower your allocation.
Unless they’re no transaction cost ETFs, that’s a bad idea. People would get eaten alive by brokerage fees.
I would also like to take this opportunity to mention, again, that there is no such thing as a “passive” target date fund. The most important part of a TD fund is its glidepath and that, obviously, has to be actively managed. In the TD world, passive just means low cost, but if the glidepath is poorly constructed you’ll pay for it over time. That’s just a Public Service Announcement. Not directed to anyone in particular.
I think the #1 reason to buy commodities now is that they are completely contrarian. I don’t profess to know much about commodity investing, but I do know that O&G and many others crashed several years ago and have traded roughly flat for a long time to the exent that most investors have forgotten about them or are just apathetic towards them. Often that is a good time to buy.
I’ll admit I haven’t done a ton of research on these particular funds, but I’m not sure transactions costs matter in this case. It was a single ETF, say the 2050 ETF, that holds 4-6 ishares ETFs in an allcoation based on the S&P TD benchmark allocation. I believe the benchmark rebalanced to the glidepath quarterly.
All that should matter is the total fee on the one ETF that you own, and in this case it was around 20-30bp I believe. Not too bad considering the average TD cost is 70-100bp. However maybe the reason they closed is because they couldn’t make any money off the product at that fee level.
I’ve done a fair amount of TD fund research and wouldn’t buy 80% of them. I thought the ishares product was very transparent and efficient. With most other funds, you can barely tell what the asset allocation is by looking at the holdings. Some firms throw their garbage mutual funds with 10M in assets into each target date fund just to boost assets. Adds zero value in my opinion. The vanguard products are good, but I think the glidepath holds too much equities at and after retirement.
TD ETFs aren’t feasible because almost all TD flows are from ERISA plans that DCA into them. Having to pay $7 a trade for your retirement fund of choice - one that you should “in theory” contribute to on a regular basis - is literally borderline criminal.
On the Ags front prices were extremely high last planting season. As learned, due to higher prices producers will produce more, that has lead to record crop production this year and rock bottom prices. Next year, I expect producers to curtail their production in an effort to boost prices.
Same for Oil as well. Record production (at least in the US anyway) and not as many people riding around in Range Rovers and Suburbans. OPEC will surely curtail production at some point if prices (brent below 100) continue their downward spiral.
Metals seems to be the go-to if and when the broader markets sour. Ags and Energy are more directly driven by supply and demand measures, regardless of how the economy moves, there seems to be a never ending supply of new oil finds, just like diamonds.
I work a lot with CTAs and seems as though a lot of them have forgot how to short. More of them out of business this year than I have ever seen.
Well, most CTAs are trend following, and use futures, which are more liquid (I work/worked for one). Basically stocks have had only one trend - up, so that’s long. Other asset classes have been fairly flat recently, other than high yield, and nothing has really plummeted, so it’s not too surprising that CTAs aren’t shorting much.
However, the flat performance other asset classes means that CTAs just look too anaemic over the past few years, compared to a simple “put it all in equities” strategy, and so a lot of CTA investors have pulled out in favor of something cheaper. This is one of the reasons so many have folded.
It’s not clear that shorting would really add that much alpha in the recent past. The main advantage of a CTA is the ability to short in the future.
I know a lot of CTAs, their primary business is to hedge for producers…but these YTD numbers are almost a direct opposite of what has happened in the equity markets (I am pointing towards the Ags)…The prices are not expected to get better by year end so I could see a number of funds playing the mean-revision card on a few of these…pending any catastrophic news.
The best way to profit from LNG will be to own North American gas, rather than the liquidifers which is a horrendous high capital cost, high operating risk business. And once markets shift to equilibrium with LNG coming online, LNG processing margins will take a fall. If you want to own infrastructure, own pipelines. If you want to play the commodity, own gas producers (which are dirt cheap today). I don’t see any compelling reason to pick an LNG processor over either.
^It’s hard to get a pure LNG player, as many of the players in the industry are large, integrated companies that have other oil and gas reserves. ConocoPhillips and ENI (Italy) have big presences in LNG, but there’s a lot of other stuff, too. Woodside in Australia is a big LNG player. As geo states, it’s important to remember LNG projects require huge upfront capital investments. The returns on LNG investments tend to be low, though when operational they provide very steady streams of cash flow that tend to be rare in the oil and gas industry.
Regarding the Nat Gas E&P’s in North America, E&P’s with good positions in the Marcellus are doing quite well. They are getting very strong returns on investment even when nat gas prices are below $4/mmbtu. Range Resources has awesome acreage in SW Pennsylvania. EQT Corp and Cabot Oil and Gas are very good, too. Those companies have been very successful despite a very low price environment so you’re not buying cheap on them, however.
If you want a distressed dry natural gas E&P and are willing to lose lots of $$ for upside, Quicksilver Resources comes to mind. EXCO Resources is also a dry nat gas E&P with mediocre acreage positions that has lost a ton of value. Interestingly, Boone Pickens and Wilbur Ross sit on EXCO’s Board. You’d think some of these companies would be distressed buyout opportunities, but fracking is tremendously capital intensive and these companies have racked up a good deal of debt over the last few years so buyouts will be more expensive with the debt. Not sure they’ll make it without a recovery in prices, which may never come as long as the Marcellus is producing.
That’s what I’m saying. I already had some pipelines for a long time for the income. With NG priced where it is today, the run in the market over the past year or two and th potential for offshore distribution I’m content to buy a LNG asset rich company and hold it for a pretty long time.