4/5/13

Zenith Portfolio Strategies Commodity Update

The first two instruments represent two base metals and their respective futures curves. Contango is defined as far month contracts selling higher than near term contracts. It is generally not an enviable condition. Backwardation is a condition where the far out contracts are less expensive than the near term contracts.

I-Path Dow Jones-UBS Copper Total Return Sub-Index ETN JJC

  • Supply glut
  • The futures curve is mostly in contango
  • Weak technical indicators persist
  • Down 14%  1yr

 

I-Path Dow Jones-UBS Aluminum Total Return Sub-Index ETN JJU

  • Supply glut
  • The futures curve is mostly in contango
  • Weak technical indicators persist
  • Down over 15% 1 yr

 I-Shares IAU  Gold

  • $ strength
  • The futures curve is in contango
  • Weak technical indicators persist
  • Down approximately 5% 1yr

 

PowerShares DB Commodity Index Tracking Trust DBC

-The index commodities are light, Sweet Crude Oil (WTI), Heating Oil, RBOB Gasoline, Natural Gas, Brent Crude, Gold, Silver, Aluminum, Zinc, Copper

Grade A, Corn, Wheat, Soybeans, and Sugar.

  • demand and supply dynamics are largely in excess supply but are specific to each commodities unique dynamic
  • The futures curve is mostly in contango although there are portions of each unique commodity that are in backwardation.
  • Weak technical indicators persist
  • Down approximately 5% 1yr

 

This group represents a mix of equity commodity producers.

 

SPDR S&P Metals and Mining ETF   XME

  • Weak fundamentals
  • Weak technical indicators-1 yr time frame
  • Sharpe, Treynor and Information Ratio are all negative for a 3yr time frame
  • Standard deviation is 30 for the last 3 yr time frame
  • Down over 17% 1yr

 

 

Market Vectors Coal Index ETF KOL

  • Weak fundamentals
  • Weak technical indicators-1 yr time frame
  • Sharpe, Treynor and Information Ratio are all negative for a 3yr time frame
  • Standard deviation is 33 for the last 3 yr time frame
  • Down over 26% 1yr

 

 

Market Vectors Rare Earth Strategic Metals ETF

  • Weak fundamentals
  • Weak technical indicators-1 yr time frame
  • Sharpe, Treynor and Information Ratio are not available for the last 3yr time frame
  • Standard deviation is not available for the last 3 yr time frame
  • Down over 34% 1yr

 

Zenith recommends that wealth management firm investment committees take the time to examine the dynamics of each portion of the commodity complex. While it is not a definitive indicator 100% of the time, a weak commodity complex can be indicative of waning global demand and potentially weak risk assets.

We will update as the base metals complex show signs of fundamental strength in aggregate cash flow and supply demand dynamics become more favorable. Until then, continue to hold near the bottom end of established ranges for commodities.