Capturing Commodities: ETF Momentum Tracker sees one fund looking abroad

July 10, 2008 - PRLog -- In its latest issue, Fidelity Independent Adviser’s ETF Momentum Tracker credits GSG’s success to emerging markets exposure.

http://www.fidelityadviser.com/readMe_ETF.asp

This week’s issue of Fidelity Independent Adviser’s ETF Momentum Tracker takes a close look at iShares S&P GSCI Commodity-Indexed Trust (GSG), which has remained in the top three spots on the Sector Momentum Table since its January 22 debut.

“Its returns are very impressive,” noted publisher Don Dion, “the fund gained 44% year to date through July 3 and nearly 79% in the one-year period ending on that date.”

http://store.fidelityindependentadviser.com/etf1yr.html

As oil rules the headlines, commodities have continued to captivate investor interest, providing many investors an oasis in an otherwise parched economy.

GSG’s methodology, with investment in 24 commodities through futures contracts, manages to capture the craze and provide exposure to another ETF darling: emerging markets.

Like the index it tracks, the S&P GSCI, GSG’s portfolio is world-production weighted. In other words, the amount of a particular commodity in which GSG invests is determined by the amount of that commodity that flowed through the global economy during the last five years.

“Production values shift constantly,” Dion says, “when growth in emerging markets is strong, agricultural and petroleum-based commodities tend to play a larger role in the global economy.”

Emerging economies such as China, India and Brazil have expanded their presence in the global economy in recent months, causing demand for agricultural and petroleum-based commodities to continue growing. China recently became a net importer of both corn and gasoline for the first time in its history.

With the economy mired in uncertainty, GSG’s flexible model may soothe weary investors. One advantage of the world-production weighting system is that it allows GSG to reflect the changing dynamics of the global economy.

“If a certain biofuel eventually usurps oil’s role in the global economy, then GSG will invest the majority of its assets in that commodity,” Dion said. “Likewise, if a particular crop overtakes corn’s dominant position among agricultural commodities, that crop’s role in GSG’s portfolio will expand proportionately,” Dion added.  

Will GSG stay atop ETF Momentum Tracker’s sector table? Dion thinks it will depend on the fate of oil prices and, less important, the prices of other energy commodities.

“Politicians are struggling to devise policies to halt out-of-control oil, while economists are attempting to explain the phenomenon,” Dion said, “and consumers and businesses are searching for ways to cut back on their fuel consumption. If such efforts are successful, oil prices may soften.”

As long as emerging economies are driving the global economy with robust growth, however, many of the commodities in GSG’s portfolio are likely to spur positive returns for the fund.

Performance
Period*   Mkt. Return (%)   +/- Index Return**
1 week    2.47         +4.02
1 month   13.92         +22.07
3 months   30.60         +37.89
YTD      44.77         +57.84
1 year    78.93         +94.42
*Through 7/3/08
**Index: S&P 500
Source: Morningstar

Index*

Energy       78.48%
Industrial Mat’ls   5.65%
Precious Metals   1.65%
Agriculture      11.52%
Livestock      2.70%
*As of 7/3/08
Source: goldmansachs.com

ETF Momentum Tracker is a member of Fidelity Independent Adviser’s family of financial publications. With more than 70,000 subscribers in the United States and 29 other countries, Fidelity Independent Adviser publishes four monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers. http://store.fidelityindependentadviser.com/fidinadnew.html

Publisher Don Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Massachusetts, Dion Money Management manages more than $720 million in assets for clients in 49 states and 11 countries. A licensed attorney in Massachusetts and Maine, Mr. Dion has more than 25 years’ experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management. http://www.dionmm.com/

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Fidelity Independent Adviser is a family of newsletters, that provides to a broad range of investors Don Dion’s commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 70,000 subscribers in the United States and 29 other countries, Fidelity Independent Adviser publishes four monthly newsletters and three weekly newsletters. http://www.fidelityadviser.com/