One of my primary goals is to invest where I have an objective edge. There are many ways to try to get an edge, the two most common being:
- Value investing—where you try to find companies that are currently undervalued, or likely to grow their profits faster than expected
- Technical analysis—where you use patterns or indicators to determine what a security will do next (e.g., head-and-shoulders, oversold / overbought)
Both of these approaches, in their standard usage require you to correctly predict a future price. In June 2011 UBS introduced two new ETNs that get their edge by predicting that the traditional price differentials in futures contracts will be stable. See this post (http://tinyurl.com/7f8fn3t) for details. In theory these ETPs are not sensitive to the absolute price of the products (oil and natural gas)—they just need the term structure of the futures to stay close to their historical norms.
After six months that produced dramatic price moves in oil and natural gas, these funds are demonstrating they are insensitive to the commodity prices, and GASZ is showing a tidy 10% profit. The charts below show the performance of OILZ and GASZ compared to popular ETNs that try to track the price of these commodities (USO & UNG).
It looks to me like GASZ is a winner. The jury is still out on OILZ. The price spikes on the charts are probably due to investors buying or selling when bid / ask prices were especially wide. These products are lightly traded and require some research in order to set appropriate limit orders.
Disclosure: long positions in OILZ and GASZ