NEW YORK ( ETF Digest) -- Tensions in the Middle East and with Iran specifically have boosted prices for crude oil and associated energy products. Increasing global demand for energy, particularly from emerging market countries including China and India, have also put pressure on prices. In the U.S. energy exploration domestically remains politically controversial with warring factions contributing to a lack of any coherent energy policy. This has been self-destructive since alternative energy sources are not yet commercially viable especially as a substitute for gasoline. All this contributes to higher inflation. Commercial and even retail consumers can hedge their daily energy costs and needs by using direct energy ETPs (Exchange Traded Products).
Another consideration causing prices to rise has been central bank easy monetary policies which began in 2008 causing downward pressure on the U.S. dollar. Since most commodities are priced in dollars this puts upward pressure on prices which can become inflationary for all commodity prices, especially energy.
As a former CTA (Commodity Trading Advisor) and CPO (Commodity Pool Operator) I know the value of having an allocation to direct energy ETPs. Energy and energy related products are consumed by all of us every day. Whether it's heating your home or filling up the family car with fuel we focus on these costs like a laser. The bottom line no matter your views we all will continue to use these products for a long time to come. When energy prices are rising, it's good to have products like these available if only to hedge rising prices for yourselves. These products do more than add diversification opportunities for any portfolio. Uniquely, ETPs in our list offer unleveraged exposure to these products as opposed to having to trade directly with leveraged futures contracts, complex options and more compliance paperwork complications.
In addition to normal market risks four other risk factors should be considered:· The CFTC's varying considerations regarding commodity position limits as applied to the assets of ETF and ETNs--still in limbo. · The credit quality of ETNs given these are "notes" many guaranteed by Barclay's and/or Deutsche Bank. · Backwardation (back month contracts lower than front month) and Contango (back months higher than front month) can negatively affect contract rollover for investors. · Since most commodities trade in dollars, the value of the dollar can positively or negatively affect price behavior. We feature a technical view of conditions from weekly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 22 period simple weekly moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach. Subscribers to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions. More often than not DeMark signals provide fine-tuning of open positions to capture gains. For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares, Direxion Shares and Deutsche Bank. Where available these are noted.