Tuesday, February 02, 2010

Bubble in commodity funds

This article explains a potential bubble in commodity funds. It involves complex financial engineering, created by investment banks to earn a fee. This is similar to the debacle on the credit deriviatives.  It is better to invest in indexed funds that invest directly in the underlying stocks. Derivatives should be avoided.


Anonymous said...

My respectful suggestion as follows:

1) If you are plain lazy, don't invest in commodity ETFs and ETNs

2) If you are willing to learn and put in the effort, find out about the following before you invest

a) Is it an ETF or ETN? If you have to ask what's the difference, see paragraph (1) above.

b) Does the ETF buy the physical commodity or does it buy into the futures of the underlying commodity?

e.g. GLD versus USO

c) How well does the ETF track the price movement of the commodity?

e.g. GLD versus USO

Anonymous said...

The ntuc new ILP funds called AIMS have lots of these bubbles and other bubbles.

Anonymous said...

NTUC AIMS invest in ETF funds made up of commodity futures.

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