Etfs; Are They Worth The Paper Theyre Written On?

[Executive Sadman]

Im currently toying with putting aside a small amount of money into ETFs.

Realistically, i dont expect much growth from any of these in the near future, but anyway, i digress...

Are ETFs themselves proven to be reliable? - some have said that Gold ETFs are backed by nothing, and a sudden withdrawal from them could cause them to implode (sounds like madoff! athough i understand legitimate hedge funds have had to put limits on withdrawals also). Would it be more sensible to just invest in oil companies, or mining companies, or agricultural companies?

Also if, in the unlikely even the USDollar is no longer used to value oil or other commodities, what happens to funds held in ETFs?

[shug]

Im currently toying with putting aside a small amount of money into ETFs.

Realistically, i dont expect much growth from any of these in the near future, but anyway, i digress...

Are ETFs themselves proven to be reliable? - some have said that Gold ETFs are backed by nothing, and a sudden withdrawal from them could cause them to implode (sounds like madoff! athough i understand legitimate hedge funds have had to put limits on withdrawals also). Would it be more sensible to just invest in oil companies, or mining companies, or agricultural companies?

Also if, in the unlikely even the USDollar is no longer used to value oil or other commodities, what happens to funds held in ETFs?

ETFs are backed by many institutions. I believe ETFs Gold and Silver were AIG backed, as too were many others. ETFs in this current crisis are best left. I bailed out a while back because of the poor returns. They simply are not worth the hassle.

Best picking quality stocks yourself. As far as I know, only one ETF has done ok so far and that is SOIL. It has topped out or about to, but the amount of money you have to put in, in order to generate profit is alot for little profit.

As for the rest of your question, I cannot answer as I don't have ETFs and moreover, I have not experienced the effect the dollar being dumped having an effect on them.

My tuppence worth.

[Executive Sadman]

Thanks for the reply, i think youve summed up most of my concerns - like you hargreaves lansdowne mention the AIG issue. http://www.h-l.co.uk/shares/Risks-of-etfs

"AIG was subsequently rescued by the US Federal Reserve and all of the suspended ETFs have since resumed trading albeit with significantly increased spreads."

I guess i like the apparent simplicity of them, but there does seem to be some underlying risk. I dont intend to leverage or anything. Just buy and hold for quite some time. Given the potential future upheaval in financial markets it seems the actual price of commodities isnt the only thing id have to worry about if i bought some etfs!

I probably shouldnt be asking this, but am i right in thinking that these would be protected under the FSCS protection scheme up to £48k?

http://www.fscs.org.uk/consumer/key_facts/...nsation_limits/

(ie if the broking companies go to the wall, but the value of the underlying investments remain)

[pharm]

Thanks for the reply, i think youve summed up most of my concerns - like you hargreaves lansdowne mention the AIG issue. http://www.h-l.co.uk/shares/Risks-of-etfs

"AIG was subsequently rescued by the US Federal Reserve and all of the suspended ETFs have since resumed trading albeit with significantly increased spreads."

I guess i like the apparent simplicity of them, but there does seem to be some underlying risk. I dont intend to leverage or anything. Just buy and hold for quite some time. Given the potential future upheaval in financial markets it seems the actual price of commodities isnt the only thing id have to worry about if i bought some etfs!

I probably shouldnt be asking this, but am i right in thinking that these would be protected under the FSCS protection scheme up to £48k?

http://www.fscs.org.uk/consumer/key_facts/...nsation_limits/

(ie if the broking companies go to the wall, but the value of the underlying investments remain)

Only some ETFs are deriviatives based: The levereged ones are obviously (since they're buying deriviatives to obtain the leverage), but the straight investment ones which own the underlying assets can be just as good as the equivalent funds, but often with lower overall costs. The gold ETF (streettracks?) owns physical allocated gold IIRC, whereas the leveraged silver / gold ETFs were backed by deriviatives for which AIG was the counterparty. Hence when AIG went under, the ETFs went with them, until AIG was bailed out by the US gov.

Of course the Gold bugs will tell you that owned allocated Gold is pointless, which is probably true, unless you're investing as a form of currency speculation (rather than insurance against TEOTWAWKI).

[shug]

Thanks for the reply, i think youve summed up most of my concerns - like you hargreaves lansdowne mention the AIG issue. http://www.h-l.co.uk/shares/Risks-of-etfs

"AIG was subsequently rescued by the US Federal Reserve and all of the suspended ETFs have since resumed trading albeit with significantly increased spreads."

I guess i like the apparent simplicity of them, but there does seem to be some underlying risk. I dont intend to leverage or anything. Just buy and hold for quite some time. Given the potential future upheaval in financial markets it seems the actual price of commodities isnt the only thing id have to worry about if i bought some etfs!

I probably shouldnt be asking this, but am i right in thinking that these would be protected under the FSCS protection scheme up to £48k?

http://www.fscs.org.uk/consumer/key_facts/...nsation_limits/

(ie if the broking companies go to the wall, but the value of the underlying investments remain)

You are correct in that 48k is protected. I would err on the side of caution if you intend to go long. I say this based on ratio figures I use personally. Any ETFs tracking indexes are over priced by a long chalk. Hence why it is more profitable to treat the markets on a 'get in, get out quick' stance once profits have reached a decent amount, wait for the falls, and then get back in and get out again. The markets have not bottomed out yet, and despite the past couple of weeks, where there has been a rally, I don't trust the rally, and is fools rally imo.

You might have often heard 'do your own research', but thats what you need to do tbh. Read up, check the financials etc... understand what the financials are saying. Good luck.

[delboypass]

wow came on here to ask about ETFs and first thread going..sweet

Guys any opinions about ETFS Crude Oil

I also am a novice but looking to dabble..

Any way to teach myself??

I want to get into oil at $34...got to be a buy..!

[BARRY SCOTT]

I want to get into oil at $34...got to be a buy..!

Exactly what I'm thinking too.

I'm also a novice and thinking about buying LOIL ETF through self trade.

I think LOIL was suggested on here a while back.

Any advice from the enlightened appreciated.

[Executive Sadman]

Cheers for the advice.

And a visit from Barry Scott no less, im honoured.

[ursamajor]

Exactly what I'm thinking too.

I'm also a novice and thinking about buying LOIL ETF through self trade.

I think LOIL was suggested on here a while back.

Any advice from the enlightened appreciated.

Hi Barry

Be very careful with LOIL. LOIL is a twice leveraged form of CRUD, which itself tracks the oil price via the futures market (which means you are currently buying at a premium to spot because oil is dancing the contango).

But the issue is not just with leverage. Look at how the moves in LOIL are calculated - as twice the % of any daily moves in the oil price. This has a rather unpleasent consequence for your wealth that only emerges if you try putting some actual numbers into a spreadsheet and watching what happens over time. Basically volatility erodes your wealth relative to CRUD.

Simple example;

Crude oil at $40, LOIL nominal price 6

Day 1;

Crude falls 10% to $36

LOIL falls 20% to 4.8

Day 2;

Crude rises 11.11% back to $40

LOIL rises 22.22% to 5.87

So although oil has returned to its initial value, LOIL has not. This effect will be very small on a daily basis but repeat the process enough times and you can see how it could be disastrous. LOIL may still be a good way to play a spike in oil prices but it should IMO be used as a short-term trading weapon (if at all) rather than a longer-term play.

UM

[DrGUID]

Some of the oil ETFs are backed by Shell, some by AIG.

If you think that oil is a bargain at $34, just think how much money you would lose if it goes to $9.

I've not yet traded the oil ETFs as oil trading is very high risk for us amateurs.

[BARRY SCOTT]

Hi Barry

Be very careful with LOIL. LOIL is a twice leveraged form of CRUD, which itself tracks the oil price via the futures market (which means you are currently buying at a premium to spot because oil is dancing the contango).

But the issue is not just with leverage. Look at how the moves in LOIL are calculated - as twice the % of any daily moves in the oil price. This has a rather unpleasent consequence for your wealth that only emerges if you try putting some actual numbers into a spreadsheet and watching what happens over time. Basically volatility erodes your wealth relative to CRUD.

Simple example;

Crude oil at $40, LOIL nominal price 6

Day 1;

Crude falls 10% to $36

LOIL falls 20% to 4.8

Day 2;

Crude rises 11.11% back to $40

LOIL rises 22.22% to 5.87

So although oil has returned to its initial value, LOIL has not. This effect will be very small on a daily basis but repeat the process enough times and you can see how it could be disastrous. LOIL may still be a good way to play a spike in oil prices but it should IMO be used as a short-term trading weapon (if at all) rather than a longer-term play.

UM

Thanks for the advice.

What vehicle do you recommend for a novice to get some exposure to the price of oil? I'm working on the assumption that Oil is currently a good buy, I appreciate it could go lower.

Barry

[ursamajor]

Thanks for the advice.

What vehicle do you recommend for a novice to get some exposure to the price of oil? I'm working on the assumption that Oil is currently a good buy, I appreciate it could go lower.

Barry

I've gone for the etf CRUD. It is unleveraged, has low charges, and has a pretty good correlation with the oil price.

The other, maybe complementary, approach is to load up on mid-cap oil explorers and developers. Small caps look very risky in the current financial climate whilst the majors have big issues with reserve growth. Examples of mid-caps traded on the UK market that I've gone for include Cairn, Dana, BG, Tullow and Soco. A basket of these takes out some of the single company risk and should give a leveraged play on rising oil. Obviously there is significant downside if oil continues to fall and stays low for years.

Maybe 50:50 split between companies and underlying commodity (CRUD)?

UM

[shug]

Don't touch oilexco. They are about to go down.

[delboypass]

what is the best way to buy ETF CRUD??

Is there a way to buy it through the big banks like HBOS or through a share dealing company like Fidelity??

How are you investing in it?

[thecrashingisles]

what is the best way to buy ETF CRUD??

It sounds like a name to avoid though...

[shug]

Further from my previous post, Oilexco have gone into administration.

[christopher6]

I have recently invested in etfs crude oil. Although the economic output looks grim still and demand is unlikely to pick up in the near future, supply is likely to be cut. OPEC have already slashed their output and the 12-member cartel plans to meet on March 15 and may cut supplies further. It is also worth considering that reduced supply does not filter through to the pricing for a few months. I believe the price will not drop much further and with cuts also likely from non OPEC countries, the oil price will recover. OPEC have stated that they want the price of a barrel of oil to be around $70. I see the price of oil reaching this figure by the end of the year. Regarding the condition of AIG, the US government will not let it go to the wall, it is too big for that. By May, UBS investments should have purchased the indexes from AIG anyway. BUY: efts crud @ 18.50!

[Luke Skywalker]

I have recently invested in etfs crude oil. Although the economic output looks grim still and demand is unlikely to pick up in the near future, supply is likely to be cut. OPEC have already slashed their output and the 12-member cartel plans to meet on March 15 and may cut supplies further. It is also worth considering that reduced supply does not filter through to the pricing for a few months. I believe the price will not drop much further and with cuts also likely from non OPEC countries, the oil price will recover. OPEC have stated that they want the price of a barrel of oil to be around $70. I see the price of oil reaching this figure by the end of the year. Regarding the condition of AIG, the US government will not let it go to the wall, it is too big for that. By May, UBS investments should have purchased the indexes from AIG anyway. BUY: efts crud @ 18.50!

Does anyone have any thoughts on USO as a way to get exposure to Crude Oil? I'm thinking along the same lines as some on this thread and am seriously considering USO rather than CRUD.

[contractor]

Does anyone have any thoughts on USO as a way to get exposure to Crude Oil? I'm thinking along the same lines as some on this thread and am seriously considering USO rather than CRUD.

You probably want to avoid USO.

http://ftalphaville.ft.com/blog/2009/02/24...l-fund-mystery/

Try OILB instead

http://www.iii.co.uk/investment/detail?cod...ILB.L&it=lb

http://finance.yahoo.com/q?s=OILB.L

[Luke Skywalker]

You probably want to avoid USO.

http://ftalphaville.ft.com/blog/2009/02/24...l-fund-mystery/

Try OILB instead

http://www.iii.co.uk/investment/detail?cod...ILB.L&it=lb

http://finance.yahoo.com/q?s=OILB.L

Many thanks. Good advice and much appreciated.

[Tomji]

What about DJAIGCLTR?

Dow Jones-AIG Crude Oil Total Return Sub-Index

Although I am not looking to go back in at 52$ per barell, just for future reference.