Indicators Tell Us That The Natural Gas ETF’s Are A High-Risk Bet

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September 21, 2009 8:56pm ETF BASIC NEWS NYSE:DBC

risky-bet“Gerard Klingman, the head of investment firm Klingman & Associates, feels that natural gas will likely rise through the fall, but even so he doesn’t recommend investors try to capitalize

 on the recent action. Instead he thinks investors should get exposure to commodities through either a diversified fund or by working with a commodity-trading advisor. If you are interested in going the fund route, he suggests investigating either the Powershares Deutsche Bank Commodity Tracking Index (DBC) or the Dow Jones AIG Commodity Exchange Traded Note (DJP). “We believe that most investors are better served deciding how much of their portfolio should be allocated to commodities and then use the diversified exchange-traded fund option,” he says. Year-to-date the Powershares ETF is up 3.4%, and the Dow Jones AIG ETF is up 7.8%,”  David Serchuk Reports From Forbes.

Serchuk continues to write “Greg Ghodsi, the head of the 360 Wealth Management Group at Raymond James, takes an opposite approach. For those who want to invest in natural gas, he recommends individual stocks, as many in this sector pay dividends and have shown improvement in their charts.”  “The easy way to participate is through ETFs, but our indicators tell us that the trade is a high-risk bet,” he says. “Supply at this time is much greater than demand.”

“Some names that Ghodsi says are worth investigating include Piedmont Natural Gas (PNY), Energen (EGN), ONEOK (OKE) and Gasprom OAO (OGZPY).  Of those listed above, the Russian firm Gazprom has had the best 2009, up 63.5%. For those interested in staying domestic, Energen has had the strongest performance, up 49.4% year-to-date, while paying a $0.50 dividend. ONEOK is second, up 23.8% in that time, paying a dividend of $1.68. Piedmont has lagged, down 22.7%, paying a $1.08 dividend. By contrast, the United States Natural Gas fund (UNG) is down 51% year-to-date, giving some credence to Ghodsi’s misgivings about playing the commodity alone,”  Serchuk Reports.

See the full article: HERE

Here are some details on the ETF’s mentioned above:

The investment (DBC) seeks to reflect the performance of the Deutsche Bank Liquid Commodity index. The fund will pursue its investment objective by investing in a portfolio of exchange-traded futures on the commodities comprising the index, or the index commodities. The index commodities are light, sweet crude oil, heating oil, aluminum, gold, corn and wheat. The index is composed of notional amounts of each of the index commodities. The notional amounts of each index commodity are broadly in proportion to historical levels of the world’s production and supply.

Chart for PowerShares DB Commodity Index Tracking (DBC)

The investment (DJP) seeks to link to the Dow Jones-AIG Commodity Total Return index and reflects the returns that are potentially available through an unleveraged investment in the futures contracts on physical commodities comprising the index plus the rate of interest that could be earned on cash collateral invested in specified Treasury Bills. The commodities represented in the Dow Jones-AIG Commodity index Total Return are rebalanced annually. Each subgroup exposure is capped at 33% as of the January 2006 rebalancing, however the weightings fluctuate between rebalancings due to changes in market prices. The fund is nondiversified.

Chart for iPath Dow Jones-AIG Commodity Idx TR ETN (DJP)

The investment (UNG) seeks to replicate the performance, net of expenses, of natural gas. The trust will invest in futures contracts on natural gas traded on the NYMEX that is the near month contract to expire. It is nondiversified.

Chart for United States Natural Gas (UNG)





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