Track Metals Not Energy

When it comes to tracking ETF’s the there are winners and losers. The Equity Indexes S&P 500, Russell 2000 and NASDAQ are tracked very well by the (SPY), (IWM) and (QQQ). Maybe because there is a lot of liquidity in these ETF’s, and the Indexes are not easily traded outside of the Futures. Maybe they have been around long enough for the fees to be reigned in. Whatever the case they are a good fit.

But when you get out side of these the tracking ETF’s are not all created equal. Take a look at the metals. The chart for Gold above shows the Futures and the ETF (GLD). On a first glance you cannot tell the difference between the two with the Futures looking more like a 2-day Simple Moving Average. The chart below for Copper Futures against the ETF (JJC) is similar but with a little more dispersion.

But when you compare these to the energy charts it gets crazy. Look at the comparison for Crude Oil Futures and the ETF (USO) in the chart below. After tracking well up through the fall into 2009 the Futures have been up big over the last 3 years with the ETF running sideways. Hmmm. But this is not an isolated case. The last chart, Natural Gas Futures and the ETF (UNG) is just as bad. The general downtrend is the same but look at the bump in Futures with a steady decay in the ETF.
You could run a lot of quantitative analysis on fees on each fund and determine the liquidity of the underlying and perhaps come up with a solid explanation for this. For me it is enough to know that they do not track well and only use them for very short-term purposes if at all.

Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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