Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie
Hi there,
There is an issue with role permissions that is being worked on at the moment.
If you are having trouble with access or permissions on regional forums please post here to get access: https://www.boards.ie/discussion/2058365403/you-do-not-have-permission-for-that#latest

ETF in oil -- any recommendations on which one

  • 14-12-2010 12:05pm
    #1
    buzz11
    Registered Users, Registered Users 2 Posts: 764 ✭✭✭


    Buying an Oil ETF is fairly tricky and its important to buy the right one, can anyone recommend one that they feel is best.
    It seems the considerations are;
    -currency risk
    -volume of trading
    -security of the ETF (who's behind it)
    (anything else to consider?)


Comments

  • #2
    neris
    Registered Users, Registered Users 2 Posts: 20,084 ✭✭✭✭neris


    Havent got any etfs myself yet but am looking around 1 or 2 sites and etf securities seem to have a good range of etfs in oils and other energy products. All their funds are sold through the uk so should be easy enough to buy in with a uk or irish broker.


  • #3
    dunkamania
    Closed Accounts Posts: 1,803 ✭✭✭dunkamania


    Oil futures are traded in dollars. if you are buying oil through an ETN, than you are taking EUR/USD risk (assuming your a Euro based investor). The denomination of the etn is therefore largely irrelevant. ie if you were to buy a sterling denominated etn, it should give you similar return to the Euro denominated etn, once you convert the value of the sterling etn into euros.

    Volume of trading is not really an issue, for any of the main commodity etn's as they are very liquid, and the manager usually employs market makers to support volumes, and tight spreads.

    Security of the etn is an issue, no etn has yet been unwound, following a credit event,(to my knowledge) so the outcome in such a case is uncertain. Unlike an etf, an etn is not backed by the underlying physical asset, instead the issuer is guarantor for the product. In general the better known etf's are either owned or guaranteed by very large financial institutions, so it really comes down to your confidence in the global financial system.

    What I would say the most important issue to take into account is, whether or not the etn does its job of tracking the move in oil prices. Due to contango issues, as well as traders gaming the roll of contracts, etn's can under-perform the underlying significantly.


  • #4
    WildBoots
    Closed Accounts Posts: 337 ✭✭WildBoots


    buzz11 wrote: »
    Buying an Oil ETF is fairly tricky and its important to buy the right one, can anyone recommend one that they feel is best.
    It seems the considerations are;
    -currency risk
    -volume of trading
    -security of the ETF (who's behind it)
    (anything else to consider?)

    If you have absolutely no idea what you want, you shouldn't be buying. Spend some time doing a bit of research. I don't mean to sound like a d1ck, but I'd say the same thing to anyone else asking the same question.


  • #5
    irishh_bob
    Closed Accounts Posts: 5,700 ✭✭✭irishh_bob


    an investment advisor told me today that only the very experienced investor should buy ETF,s , i told him i had some soft commodity ETF,s ( wheat , sugar , cotton , cattle ) and that i felt they were a good buy as agriculture was going well and expected to do well into next year , this guy reckoned that ETF,s were created as a tool to speculate on commodities , that the price is completley distorted and that its impossible for small investors ( non sharks ) to make any money on them as the price you pay is never based on reality or present values


  • #6
    Jim2007
    Moderators, Business & Finance Moderators Posts: 10,605 Mod ✭✭✭✭Jim2007


    irishh_bob wrote: »
    an investment advisor told me today that only the very experienced investor should buy ETF,s , i told him i had some soft commodity ETF,s ( wheat , sugar , cotton , cattle ) and that i felt they were a good buy as agriculture was going well and expected to do well into next year , this guy reckoned that ETF,s were created as a tool to speculate on commodities , that the price is completley distorted and that its impossible for small investors ( non sharks ) to make any money on them as the price you pay is never based on reality or present values

    I would not agree that it is impossible for the small investor to make money on this, but I think that it is very likely that many investors will make little or no money on this simply because of the way the basked of commodities is constructed and implemented. There is no "natural" tracker to use here and no easy way to implement it, so the fund management is left to its own devices in deciding what to put in and how to weight it and as a result you could end up with something that is not representative of the market and goes no where. At the same time most funds will implement the strategy via derivatives of some kind and as such they will have a different risk profile to the actual commodities themselves and thus a different return as well.

    Personally I would look at a "pikes and shovels" strategy if investing in this area...

    Jim.


  • Advertisement
Advertisement