Here's a look at some of what Don Dion blogged about on RealMoney this week. Topics include a new mutual fund for distressed debt exposure, a Canadian natural gas fund and new FINRA margin rules for leveraged ETFs.
To save investors from this dangerous instrument, I have suggested a number of other options that provide the desired exposure to the commodity without all the risk. First Trust ISE-Revere Natural Gas Index Fund ( FCG) tracks the performance of companies that are heavily exposed to the sector and JPMorgan Alerian MLP Index ETN ( AMJ) plays the companies that transport and store natural gas. I feel that these options are safer than funds that track actual natural gas futures contracts. While UNG may be the poster child for natural gas ETFs in the U.S., Canada's Claymore Natural Gas Commodity ETF ( GAS) uses an identical strategy for investors to the north of us. However, the fund's 1.19% premium is significantly smaller than the bloated UNG's. GAS currently charges a 0.80% fee and high trading volume of over 800,000. Interestingly, GAS's volume has been up since mid-August. This is right around the time that UNG suspended new share issuance. Comparing the two funds' one-year charts tells the same chilling story. Both funds are down over 70% for a one year period Investors should be aware that by using the same strategy, GAS is highly susceptible to the issues that UNG has faced. Although the Canadian government has not intervened with GAS yet, this does not mean that it is a safe investment. As GAS continues to attract volume, it will be interesting to see if the fund will gain the infamy of its U.S. cousin.
FINRA sent out a "special alert" today about increased margin requirements for leveraged ETFs. This could serve as an additional blow to the popular "ultra-long" and "ultra-short" strategies that have grown tremendously in popularity in 2009. New margin requirements will stipulate that investors have margin "commensurate" with the funds' strategies. The most recent blow to leveraged funds comes after a summer of trouble for issuers like Direxion, Rydex and ProShares. In June, FINRA released a statement to caution brokers about the funds. The September release recalls that: "FINRA recently reminded firms of their sales practice obligations with respect to leveraged and inverse ETFs, including the risks caused by the fact that most of these funds are designed to achieve their stated performance on a daily basis." New regulations are a positive step to distinguish traditional and nontraditional ETF products. ETFs, traditionally known for their transparency and low cost, have taken new forms as the industry grows. Leveraged, futures-based commodity and currency funds differ from traditional ETFs in their structure. Regulatory requirements, like the most recent from FINRA, will help investors to determine suitability. For a more detailed look at the new rules, read this article from the free site. Investors weren't looking to long-term Treasury bonds today for safety -- iShares Barclays 20+ Year Treasury ( TLT) fell -- instead finding it in PowerShares DB U.S. Dollar Bullish Fund ( UUP), which was up 0.6%, and an assortment of inverse ETFs. Commodities fell along with equities today, with oil and natural gas down again. U.S. Natural Gas ( UNG) fell less than its net assets and now sports a premium approaching 18%.
Emerging markets were a mixed bag. iShares Israel ( EIS) managed a 0.3% gain on the day, while Market Vectors Vietnam ( VNM) and Market Vectors Indonesia ( IDX) managed to beat the S&P 500 with losses of 1.8% and 1.7%, respectively. Recent highfliers such as iShares Turkey ( TUR) and energy-related countries such as Market Vectors Russia ( RSX) suffered larger losses, as did iShares Sweden ( EWD), possibly due to the banking-related declines in the market. Sweden is highly tied to the deeply indebted Baltic states.