Tag Archives: investing
Quarterly Update: Portfolio Rebalancing – A Potentially Golden Opportunity
For a variety of reasons, gold is a widely held asset class within investment portfolios. Many investors include gold in their asset allocation mix for its perceived ability to act as both a diversifier and as a potential store of value in times of uncertainty; these perceptions contribute to the concept of gold as a “core holding” in many diversified portfolios. Indeed, with the notable exception of Warren Buffett, 1 some of the investment community’s most distinguished names currently maintain investments in gold 2 . Like any investment, gold is subject to rebalancing or reallocation when its value relative to other portfolio components shifts significantly. Examining quarterly data from the beginning of 1976 (the year that gold started trading freely in the United States) through the quarter ended March 31, 2016, suggests that gold is overvalued relative to historical price relationships with the major agricultural crops of corn, wheat, soybeans and sugar. 3 In fact, the gold/soybean ratio is nearly at its all-time high. At quarter end March 31, 2016, the gold/corn ratio, defined herein as the number of bushels of corn an investor could buy with the proceeds from selling one troy ounce of gold, was 351 bushels, versus a 39-year average value of 170 bushels. Gold investors attempting to maximize portfolio performance through disciplined quarterly or annual rebalancing, may want to consider adjusting their gold holdings in tandem with their existing or anticipated agricultural sector portfolio investment mix. For example, the historical data for the gold/corn ratio suggests that a mean reversion 4 from March 31, 2016 levels of 351 bushels to the 39-year mean value of approximately 170 bushels of corn for each ounce of gold (bu/oz), could benefit an investor rebalancing gold for corn within their portfolio. Click to enlarge As illustrated in the chart on page 1, at 351 bu/oz the gold/corn ratio is approximately 107% above its nearly four-decade average of 170 bu/oz. Hypothetically, if an investor sold gold and purchased corn at the current 351 bu/oz level, and the ratio subsequently retraced to its historical mean value of approximately 170 bu/oz, the investor would then be able to sell the corn and buy back 107% more gold than was originally sold, to make the temporary reallocation from gold into corn. The gold/corn ratio may have been within 6% of its all-time high at the end of Q1 2016, but both the gold/wheat and gold/soybean related ratios were also very near historic highs over the same time period. The gold/wheat ratio was within 3% of its all-time highest value, and the gold/soybean ratio was within 1%, or virtually at, its all-time high value. The gold/sugar ratio is 41% below its all-time high. Charts for the gold/wheat, gold/soybean, and gold/sugar ratios are shown below. Click to enlarge Click to enlarge The current availability of both futures contracts and futures-based exchange traded products for gold, corn, wheat, soybeans, and sugar make rebalancing the gold and agricultural components within a portfolio easier than ever before. Investors and advisors need to make an assessment of the relative value of gold versus their other portfolio constituents, including agriculture, and appropriately adjust their allocations to suit their individual investment needs and objectives. 1 “Why Warren Buffet t Hates Gold.” NASDAQ 15 Aug. 2013: Web. October 9th, 2014. 2 Based on the 13-F filings for holders of GLD, the SPDR Gold Trust, as of 3/31/16 and found using Bloomberg Professional, April 12th, 2016. 3 Analysis & corresponding charts were prepared by Teucrium Trading, LLC, using Bloomberg Professional, April 12th, 2016. All supporting detail available upon request. 4 Mean Reversion: A theory suggesting that prices and returns eventually move back towards the mean or average. This mean or average can be the historical average of the price or return or another relevant average such as the growth in the economy or the average return of an industry. Disclosure: I am/we are long I AM/WE ARE LONG CORN, WEAT, SOYB, CANE, TAGS. Business relationship disclosure: Sal Gilbertie is the Founder, President, and CIO of Teucrium Trading, LLC, the Sponsor of the Teucrium CORN Fund ETP (NYSE Ticker “CORN”) and other agricultural ETPs listed on the NYSE under the ticker symbols “WEAT” “SOYB” “CANE” and “TAGS.” Additional disclosure: I have held in the near past, and may purchase in the near future, shares of DGZ as a proxy for short gold against my long agricultural holdings of corn, wheat, soybeans and sugar.
ETF Deathwatch For April 2016: 35 Names Added
A whopping 35 ETFs and ETNs joined ETF Deathwatch this month. However, seven came off the list thanks to improved health, and another 11 exited due to their demise and liquidation. The net increase of 17 products pushes the count to an all-time high of 435. Despite the 585 lifetime product closures, 25 of which have occurred this year, the quantity of funds in jeopardy of increasing the death toll continues to grow. The primary reason is that all of the major investment categories are covered. New products coming to market tend to target a narrow niche, or they add a small twist to an existing strategy in an effort to be unique. Most of the 35 products joining the list fit into one of these descriptions. Even though the 331 ETFs on Deathwatch account for 76% of the 435 total, ETNs continue to have the highest representation. There are 204 ETNs listed for trading and 104 are on Deathwatch. That is more than half. Ten years ago, when ETNs first arrived on the scene, they offered exposure to many market segments that ETFs were avoiding. However, ETF offerings continue to evolve and have been encroaching on territories that were once the domain of ETNs. Today, most successful ETNs target MLPs, VIX futures, leveraged commodity futures, leveraged dividend plays or they are customized products for specific asset managers. There are only 33 ETNs with asset levels above $100 million. Actively managed ETFs also have above-average representation with 39 of the 136 (28.7%) actively managed funds finding themselves on Deathwatch. The 145 smart-beta funds on this list equates to 24.4% of that group. Traditional capitalization-weighted index ETFs appear to have the best chance of survival with just 15.8% of them currently in jeopardy. Combined, the 331 ETFs in these three ETF segments says that one in every five (20%) ETFs is on Deathwatch. The average asset level of products on ETF Deathwatch increased from $6.2 million to $6.6 million, and the quantity of products with less than $2 million inched higher from 97 to 98. The average age decreased from 46.6 to 46.4 months, and the number of products more than five years old increased from 138 to 148. The fact that sponsors have continued to subsidize 148 unprofitable funds for more than five years indicates they are either extremely patient or in denial. ETF Deathwatch is not just about closure risk. Liquidity risk should be a primary concern if you are considering any of these funds. On the last day of March, 277 ETFs posted zero volume, and 23 went the entire month without a single trade. Being lucky enough to get your purchase order filled within a reasonable bid/ask spread is one thing. Finding a buyer when you are ready to sell can be quite another. The 35 ETFs and ETNs added to ETF Deathwatch for April Cambria Value and Momentum (NYSEARCA: VAMO ) DB Agriculture Double Long ETN (NYSEARCA: DAG ) Direxion Daily Cyber Security Bear 2x (NYSEARCA: HAKD ) Direxion Daily Cyber Security Bull 2x (NYSEARCA: HAKK ) Direxion Daily Pharmaceutical & Medical Bear 2x (PILS) Direxion Daily Pharmaceutical & Medical Bull 2x (PILL) Direxion S&P 500 RC Volatility Response (NYSEARCA: VSPY ) EGShares EM Core ex-China (NYSEARCA: XCEM ) First Trust China AlphaDEX (NASDAQ: FCA ) First Trust Strategic Income (NASDAQ: FDIV ) First Trust Taiwan AlphaDEX (NASDAQ: FTW ) FlexShares Credit-Scored US Long Corp Bond (NASDAQ: LKOR ) FlexShares US Quality Large Cap (NASDAQ: QLC ) iPath S&P 500 Dynamic VIX ETN (NYSEARCA: XVZ ) IQ Hedge Strategy Macro Tracker (NYSEARCA: MCRO ) IQ Leaders GTAA Tracker (NYSEARCA: QGTA ) iShares Currency Hedged International High Yield Bond (NYSEARCA: HHYX ) iShares MSCI Saudi Arabia Capped (NYSEARCA: KSA ) John Hancock Multifactor Consumer Discretionary (NYSEARCA: JHMC ) John Hancock Multifactor Financials (NYSEARCA: JHMF ) John Hancock Multifactor Mid Cap (NYSEARCA: JHMM ) John Hancock Multifactor Technology (NYSEARCA: JHMT ) KraneShares Bosera MSCI China A (NYSEARCA: KBA ) ProShares Hedged FTSE Japan (NYSEARCA: HGJP ) ProShares MSCI Europe Dividend Growers (NYSEARCA: EUDV ) ProShares S&P 500 Ex-Financials (NYSEARCA: SPXN ) ProShares S&P 500 Ex-Health Care (NYSEARCA: SPXV ) ProShares S&P 500 Ex-Technology (NYSEARCA: SPXT ) PureFunds ISE Mobile Payments ( IPAY ) Recon Capital DAX Germany (NASDAQ: DAX ) Renaissance IPO (NYSEARCA: IPO ) SPDR S&P International Dividend Currency Hedged (NYSEARCA: HDWX ) SPDR MSCI International Real Estate Currency Hedged (NYSEARCA: HREX ) WisdomTree Global Natural Resources (NYSEARCA: GNAT ) WisdomTree Middle East Dividend (NASDAQ: GULF ) The 7 ETPs removed from ETF Deathwatch due to improved health: AdvisorShares Madrona International (NYSEARCA: FWDI ) AdvisorShares WCM/BNY Mellon Focused Growth ADR (NYSEARCA: AADR ) ALPS Emerging Sector Dividend Dogs (NYSEARCA: EDOG ) iPath Pure Beta Crude Oil ETN (NYSEARCA: OLEM ) ProShares S&P MidCap 400 Dividend Aristocrats (NYSEARCA: REGL ) ProShares Short Basic Materials (NYSEARCA: SBM ) ValueShares International Quantitative Value (BATS: IVAL ) The 11 ETFs removed from ETF Deathwatch due to delisting: ETFS Physical White Metal Basket Shares (NYSEARCA: WITE ) Recon Capital FTSE 100 (NASDAQ: UK ) PowerShares China A-Share (NYSEARCA: CHNA ) PowerShares Fundamental Emerging Markets Local Debt (NYSEARCA: PFEM ) PowerShares KBW Insurance (NYSEARCA: KBWI ) Direxion Value Line Conservative Equity (NYSEARCA: VLLV ) Direxion Value Line Mid- and Large-Cap High Dividend (NYSEARCA: VLML ) Direxion Value Line Small- and Mid-Cap High Dividend (NYSEARCA: VLSM ) ALPS Sector Leaders (NYSEARCA: SLDR ) ALPS Sector Low Volatility (NYSEARCA: SLOW ) ALPS STOXX Europe 600 (NYSEARCA: STXX ) ETF Deathwatch Archives Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.