Here is some of what Don Dion blogged about on RealMoney this past week.
Gold Seems Like a Winner, No Matter What Comes
Posted 11/23/2009 12:28 p.m. EST
Some investment managers and economists predict that many commodities will decline in price next year due to strong supply, but such a move may be thwarted by inflation. In either case, gold may be the best commodity to hold.
story out today quotes Bill Gross and Nouriel Roubini, plus a variety of industry and investment reports, to paint a picture of
. Gross and Roubini expect economic weakness going forward, such that expected demand does not materialize and oversupply causes prices to decline.
One sector that recently gained is industrial metals. They have had a strong run since Oct. 2, with
PowerShares DB Base Metals
iPath Copper ETN
iPath Industrial Metals ETN
up 13% and
up 12%. (
iPath Nickel ETN
headed in the other direction, down 3%. Exposure to nickel is what caused JJM to underperform DBB.)
iShares Comex Gold
gained 15% and the
index gained 6% over the same period. The recent run in metals appears to be inspired by inflation, because economic data have not improved significantly and the move is very similar to the gain in gold.
Investors who want to play this rally and expect stronger economic growth should stick with a diversified ETF such as DBB. Higher demand plus inflation will cause the industrial metals to outperform.
While DBB should do well in an inflationary scenario even with weak demand, a large drop in demand may still cause prices to decline. A better option for a strictly inflationary play is IAU, because gold has very little industrial demand. Gold also offers less risk on the downside because a lack of inflation will mean a weaker-than-expected economy, possibly accompanied by more financial crises.
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Clash of the Retail Titans
Posted 11/24/2009 12:25 p.m. EST
are going toe to toe this holiday season as Wal-Mart looks to expand its Web presence and Amazon seeks to expand its retail footprint. While people focus on the battle, however, they miss the war -- and a good way to profit from it right now.
The story isn't that these two giants are battling it out for retail dollars, it's that there's nobody else left in the story. This is the British Empire vs. Napoleon, or the U.S. against the Soviet Union. Other retailers are mere spectators in the war for supremacy, featuring lots of collateral damage and the threat of retail Armageddon: pure price-comparison shopping.
Home Media Magazine highlights the situation with a
recent article detailing how
is falling behind the two hegemons in their price-cut battle. It also gives a glimpse of the future of retail. According to an industry analyst cited in the story, Amazon recently had the lowest prices on a sampling of products sold by all three retailers, with Wal-Mart coming in second and Best Buy trailing.
It has become a cliche to say the Internet allows consumers to instantly compare prices and find the best deal, but it has never been truer than it is today.
iPhone has an app that already allows consumers to scan barcodes and get instant information on a potential impulse buy, and it won't be long before consumers can walk into a store, scan the item they want and have their phones show them the cheapest available price.
While I believe Wal-Mart will survive, as will niche retailers that find a competitive space, the ETF that will best capture this trend is
First Trust Dow Jones Internet Index
. FDN holds a combination of companies that use the Web to deliver products and services, along with the companies that build and support the Internet infrastructure.
A Showdown in Coal ETFs
Posted 11/24/2009 7 a.m. EST
Market Vectors Coal ETF
is the first exchange-traded instrument that comes to mind when discussing anything related to the coal industry, another fund, the
PowerShares Global Coal
, also aims to track firms dedicated to the production, transportation and storage of the black rock.
Looking at the funds' underlying holdings, KOL appears to be more diversified with 40 firms making up its basket; PKOL has 30. A number of similar holdings appear among both funds' top 10 holdings, including the No. 1 holding for both:
. Other similar holdings include
China Shenhua Energy
China Coal Energy
One of the most striking differences between the two funds can be found in their geographic breakdown. While nations including Australia, China, Indonesia and the U.S. are the most prevalent nations in both funds, KOL is nearly twice as heavily weighted in the U.S. as PKOL. In fact, U.S. companies make up nearly half of KOL's total index.
Year to date both funds have returned more than 100% thanks to continued economic recovery. Through Nov. 23, KOL and PKOL have gained 134% and 127%, respectively. However, with an average volume failing to break 9,500, PKOL hasn't gained anywhere near the popularity of KOL, which boasts an average volume of 444,000. One reason for PKOL's lower trading volume may be its 0.75% fee ratio, which is higher than KOL's 0.62%.
I'd advise investors looking to play coal's continued success to choose KOL. While both funds have performed well, the cheaper expense ratio and stronger popularity will ensure more stable returns for KOL in the future.
A special note from Don: Put simply, I want to help you profit from ETFs.
You don't have to be an expert trader -- there are potential profits for investors at every level. And I think there's no better way to jump into the world of ETFs than through my brand-new service,
TheStreet ETF Action by Don Dion
At the time of publication, Dion was long FDN, IAU and KOL.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.