Commodity Investing: Which Lead ETF Is Right For You? (LD, LEDD)

Daniela Pylypczak: Lead is a heavy metal that has been used for thousands of years in a wide variety of applications, from building and construction to batteries, ammunition, and weights. In addition to its many uses, lead’s appeal comes from its extreme resistance to corrosion and most notably from its resistance to radiation. Because of its industrial applications, lead has some appeal to investors looking to bet on increased demand for raw materials.

Since lead deposits can be found around the globe and extraction of the metal is relatively easy, its market and global demand has tremendously risen over the years. And thanks to the development of the exchange-traded fund industry, investors now have several ways to gain access to this popular industrial commodity. Below, we outline the two most popular lead ETFs and which one will fit your investment objectives [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later]. 

Dow Jones-UBS Lead Total Return Sub-Index ETN (LD)

Quick Stats (as of 8/15/2012)

In 2008, Barclays iPath introduced the first ever lead ETN to the markets. Since then, LD has been somewhat slow to catch on with investors. This fund tracks an index that consists of only one futures contract on lead. Despite its simplicity being one of the most appealing features, LD has only been able to accumulate $2.8 million in total assets since inception. Its ADV is also relatively low in comparison to other commodity ETPs: LD trades only 4,533 a day on average. It is also important to note that LD is structured as an exchange-traded note, meaning investors will be exposed to the potential credit risk of the issuing  institution [for more commodity ETF analysis subscribe to our free newsletter].

LD is Right for You if: You are an investor seeking to speculate on lead’s movements through the use of futures contracts. 

Pure Beta Lead ETN (LEDD)

Quick Stats (as of 8/15/2012)

LEDD is the only other exchange-traded product available on the market, offering investors exposure to lead prices through the futures market, but with a slight twist. Unlike LD which rolls its holdings on a monthly basis, LEDD does not roll exposure on a predetermined schedule; the roll timing is based on a proprietary “Pure Beta” methodology designed to reduce the impact of contango or backwardation on returns.

This is perhaps the fund’s most alluring feature, considering how both of these futures trading nuances can make a devastating impact on bottom line returns. Despite its contango-fighting feature, the fund has not gained popularity over the years: it currently manages only $602,000 in total assets and has an ADV of just 3,200 shares. If LEDD is unable to scrape up more assets in the coming months, it will more than likely be forced to close its doors.

LEDD is Right for You if: You are an investor looking to achieve lead futures exposure, but want a methodology that helps avoid the adverse affects of contango. 

Written By Daniela Pylypczak From CommodityHQ  Disclosure: No Positions.

CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.

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