The Commodity Investor Q&A
With Matt Badiali
Q: I'm convinced I need to own gold and silver, but I don't want the hassle of buying bullion. Can you recommend some precious-metals funds? – D.K.
A: Great question. In May 2008, I covered about five gold and precious-metals funds, including one that holds mining stocks.
Since then, the field has exploded with opportunities. Today, at least nine funds track gold through bullion or futures, two track platinum, and four track silver. Another two track a combination of precious metals. Without even getting into mining-stock funds, we have 17 different "one-click" ways to play precious metals.
Let's start with the gold funds:
| Name |
Symbol |
Fees |
Market Value |
Type |
SPDR Gold Shares |
GLD |
0.40% |
$35,800 million |
Bullion |
iShares COMEX Gold Trust |
IAU |
0.40% |
$2,400 million |
Bullion |
Central Fund of Canada |
CEF |
0.00% |
$2,300 million |
Bullion |
Central Gold Trust |
GTU |
0.00% |
$359 million |
Bullion |
PowerShares Gold |
DGL |
0.50% |
$158 million |
Futures |
Ultra Gold ProShares |
UGL |
0.95% |
$141 million |
Futures |
E-TRACS UBS Bberg CMCI Gold |
UBG |
0.30% |
$4 million |
Futures |
PowerShares Double Long Gold* |
DGP |
0.75% |
$350 million |
Futures |
*Returns twice the actual return of gold.
All these funds match the short-term performance of gold well enough: Since December 2008, the price of gold rose 33%. The largest bullion fund, GLD, rose 30%. The largest unleveraged futures fund, DGL, rose 27%.
But the differences start to show over the long run. Over the last two years, the price of gold rose 37%. GLD rose 34%, but DGL only rose 24%. In general, the bullion funds tracked the actual gold price much better than futures funds over the long term.
Futures contracts expire, so the funds are forced to sell their old ones and buy new ones... Each time they do it, it costs a little bit. That's why these funds consistently underperform the commodities they track.
And each futures fund tracks a different basket of futures, based on a unique index. The subtle differences in the indexes can mean a big difference in your account. Year to date, for example, there was a 12% spread between the best (UGL) and worst (UBG) gold futures funds. And that's just the unleveraged funds...
DGP offers the ability to speculate on gold with leverage: It tries to return twice the rise in the spot price. But since its February 2008 launch, it's down 12%. Gold is up 2% over that period.
In general, for short-term speculations on gold, you can use unleveraged futures funds. For the long-term gold investor, bullion funds are best. The same is true for silver...
| Name |
Symbol |
Fees |
Market Value |
Type |
iShares Silver Trust |
SLV |
0.50% |
$4,700 million |
Bullion |
PowerShares DB Silver |
DBS |
0.50% |
$70 million |
Futures |
E-TRACS UBS Bberg CMCI Silver |
USV |
0.40% |
$4 million |
Futures |
Ultra Silver ProShares* |
AGQ |
0.95% |
$105 million |
Futures |
*Returns twice the actual return of silver.
Over the short term, silver funds performed about as well as or better than the spot price. Since December, the price of silver rose 71%. SLV is up 67%. DBS is up 66%. USV, which is relatively new, is up more than 80%.
The leveraged silver futures fund, AGQ, actually managed to double silver's performance. It's up 135% since its December launch.
But again, problems show up over the long term. In the last two years, silver rose 20%. SLV, the only bullion fund on the list, rose 17%. The largest unleveraged futures fund, DBS, rose only 8%.
For platinum investors, we have two choices...
| Name |
Symbol |
Fees |
Market Value |
Type |
iPath DJ AIG Platinum |
PGM |
0.75% |
$84 million |
Futures |
E-TRACS UBS Long Platinum |
PTM |
0.65% |
$55 million |
Futures |
Both PGM and PTM launched last summer. Both are down 40% from inception and up 31% this year, which tracks platinum well.
Finally, if you want to spread out the risk of owning just a single commodity, you have two precious-metals funds to choose from...
| Name |
Symbol |
Fees |
Market Value |
Type |
PowerShares DB Precious Metals |
DBP |
0.75% |
$181 million |
Futures |
iPath DJ AIG Precious Metals |
JJP |
0.75% |
$4 million |
Futures |
DBP uses a mix of 80% gold and 20% silver. It's up 20% in two years and 35% this year. If you combine the returns of spot gold and silver in that same ratio, DBP underperformed the spot prices by 12% over two years... but is right on so far this year.
JJP is 70% gold and 30% silver. The fund doesn't have two years of data, but it is up 48% this year, which is better than the spot prices by 18%. (The fund will invest in Treasuries periodically, capturing extra gains.)
What does this all add up to, besides a lot of confusing choices? Well, these funds are there to make the banks money... not you. So if I were adding a precious-metal fund to my own account, I would stick to the big bullion funds. They track the spot price well and are liquid enough to buy and sell easily.
There's no substitute for real gold – gold that "clanks." But if you can't or won't go out and buy bullion, the bullion funds are the next best thing.
Good investing.
Matt Badiali
P.S. If I missed your favorite precious-metals fund, let me know here. |
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|
Last |
Change |
52-Wk |
| S&P 500 |
1062.98 |
+1.78% |
-12.37% |
| Oil (USO) |
34.51 |
+1.50% |
-59.97% |
| Gold (GLD) |
97.05 |
+0.05% |
+12.02% |
| Silver (SLV) |
15.91 |
+1.08% |
+20.99% |
| U.S. Dollar |
77.11 |
+0.26% |
-0.52% |
| Euro |
1.46 |
-0.40% |
+0.97% |
| VIX |
24.88 |
-2.85% |
-28.38% |
| HUI |
398.09 |
+0.10% |
+20.93% |
| 10-Year Yield |
3.30% |
-0.03 |
-0.46 |
|
|
| Company |
Sym |
Industry |
Staples |
SPLS |
office supplies |
Computer Sciences |
CSC |
computer svcs |
Ross Stores |
ROST |
clothing stores |
MeadWestvaco |
MWV |
packaging |
Sybase |
SY |
software |
MEDNAX |
MD |
health services |
Endurance Spec |
ENH |
insurance |
Gardner Denver |
GDI |
machinery |
Westpac |
WBK |
bank |
Liberty Ent |
LMDIA |
cable TV |
Polo Ralph Lauren |
RL |
clothing |
Everest Re |
RE |
insurance |
Lender Processing |
LPS |
business svcs |
OGE Energy |
OGE |
utilities |
Greenhill |
GHL |
broker |
Williams-Sonoma |
WSM |
furniture |
Platinum |
PTP |
insurance |
Banco Bradesco |
BBD |
bank |
Santander-Chile |
SAN |
bank |
Citrix Systems |
CTXS |
network software |
Jefferies Group |
JEF |
broker |
Dr. Reddy's Labs |
RDY |
pharma |
James Hardie |
JHX |
building products |
Aspen Insurance |
AHL |
insurance |
Sina |
SINA |
software |
Wyeth |
WYE |
Big Pharma |
TD Ameritrade |
AMTD |
broker |
Hospira |
HSP |
drug delivery |
Illumina |
ILMN |
biotech |
American Eagle |
AEO |
clothing stores |
Chipotle |
CMG |
restaurant |
Aixtron |
AIXG |
machinery |
Syntel |
SYNT |
computer svcs |
Mercadolibre |
MELI |
business svcs |
Walgreen |
WAG |
drug stores |
Discover Financial |
DFS |
credit services |
Dr Pepper Snapple |
DPS |
soft drinks |
PartnerRe |
PRE |
insurance |
Rovi Corporation |
ROVI |
graphics software |
Nalco Holding |
NLC |
synthetics |
Vistaprint |
VPRT |
online printer |
Dril-Quip |
DRQ |
oil & gas svcs |
DIRECTV |
DTV |
satellite TV |
Mead Johnson |
MJN |
baby food |
Fairfax Financial |
FFH |
insurance |
Whole Foods |
WFMI |
grocery stores |
First American |
FAF |
insurance |
Green Mountain |
GMCR |
coffee |
Regency Energy |
RGNC |
pipelines |
Atlas Energy |
ATN |
oil & gas drilling |
Wipro |
WIT |
outsourcing |
Bancolombia |
CIB |
bank |
Credicorp |
BAP |
bank |
Ctrip |
CTRP |
online travel |
DPL |
DPL |
utilities |
Kinetic Concepts |
KCI |
medical devices |
Carlisle Cos |
CSL |
plastics |
Sunoco Logistics |
SXL |
pipelines |
|
| Company |
Sym |
Industry |
Osiris Therapeutics |
OSIR |
biotech |
|
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