Dion's Weekly ETF Blog Wrap

NEW YORK ( TheStreet) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog, anticipating which ETFs will be in play next.

Here are three of his blog posts from the past week:

The Corn Is High

Published 6/9/2011 5:15 p.m. EDT

Corn: the golden commodity you can eat. Apparently I wasn't the only investor who thought about turning to the Teucrium Corn Fund ( CORN) today after reading the latest notes from the Department of Agriculture: More than 324,000 shares of CORN crossed the tape today, three times the three-month average daily trading volume.

I've been bullish on corn since late April, as foul weather and subsequent delays in planting began to create an inevitable bottleneck in the corn market. While CORN offers corn-specific exposure, I've always contended that the ETF's single-commodity-specific risk can make its short-term gyrations intolerable for more conservative investors. The PowerShares DB Agriculture ETF ( DBA) is a more diversified fund that offers corn exposure among its variety of crop-related holdings.

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The corn crunch isn't over, however, and I expect to see a boom in the trading of CORN in the weeks ahead. Just as the Market Vectors Egypt ETF ( EGPT) took center stage as protesters unseated a tyrannical leader, CORN should see an influx of investor interest as the global market lurches to gain exposure to the bottleneck in corn markets.

Unlike the sudden explosion of a drilling platform or sudden, catastrophic fires in agricultural centers, the corn debacle has been visible for some months now. Since it takes time to plant, grow, harvest and transport corn, delays in planting will have a domino effect on the rest of the process, and panic could push prices even higher.

Right now, corn might not sound like the most exciting commodity to watch, but keep an eye out in the sessions ahead. Let's hope that the popping price of corn, and subsequent speculation about corn prices, don't create an unreasonable bubble in the CORN fund.

At the time of publication, Dion Money Management had no positions in stocks mentioned.

Deutsche Bank Trying Currency-Hedged ETFs

Published 6/9/2011 3:54 p.m. EDT

I was somewhat surprised -- in a good way -- when I first saw that Deutsche Bank ( DB) would launch five new currency-hedged international ETFs today. While the structure of the new international funds would address some very real concerns I have about fund structure and education (see this recent post on currency risk), I have doubts that the funds will succeed in today's marketplace.

On the surface, the idea behind currency-hedged equity ETFs is certainly a sound one. Today, when you buy a popular international equity ETF, like the iShares MSCI Japan ETF ( EWJ), you're rolling the dice when it comes to currency exposure. Morningstar analyst Patricia Oey explained it succinctly when she wrote:

"This fund tracks the MSCI Japan Index, and its performance is highly correlated to that of the Tokyo Stock Exchange benchmark Nikkei 225. However, there can be some variance in the returns of Nikkei 225 and EWJ because of currency effects when EWJ is converted into U.S. dollars, as EWJ does not hedge its currency exposure. In periods when the yen is appreciating against the U.S. dollar, this fund would enjoy a boost in returns upon conversion into U.S. dollars. However, it is important to note that many of Japan's large-cap companies, which account for a significant portion of this fund, are exporters, which would be negatively affected in a rising yen environment."

Since so many funds are structured like EWJ, and since currency can have such a big impact on returns, I was relatively relieved when the WisdomTree Japan Hedged Equity ( DXJ) ETF was created out of the dregs of a different Japan ETF in April 2010. It took a while, however, for investors to get on board. Hedged-currency funds tend to charge larger fees, and investors -- who are used to the usual structure of existing international funds -- were initially resistant to change.

How will the new db-X funds be received? Finding out will be an exercise in patience. Until investors begin to understand and buy into hedged-currency exposure, making the funds suitably liquid, I'm going to watch this list of new ETFs with plenty of hope from the sidelines:

  • db-X MSCI Japan Currency-Hedged Equity Fund (DBJP)
  • db-X MSCI Brazil Currency-Hedged Equity Fund (DBBR)
  • db-X MSCI Canada Currency-Hedged Equity Fund (DBCN)
  • db-X MSCI EAFE Currency-Hedged Equity Fund (DBEF)
  • db-X MSCI Emerging Markets Currency-Hedged Equity Fund (DBEM)

At the time of publication, Dion Money Management had no positions in securities mentioned.

A 'Golden Age' for Natural Gas?

Published 6/6/2011 12:36 p.m. EDT

The International Energy Agency (IEA) declared a "Golden Age" for natural gas this morning, which has sent shares of the U.S. Natural Gas ETF ( UNG) soaring more than 3% higher. Before jumping head-long into the futures-and-swaps-backed UNG, however, consider a different longer-term approach to the industry: equities.

Despite a couple of notable hurdles, I continue to be bullish on the long-term prospects of the natural gas industry and the First Trust ISE-Revere Natural Gas ETF ( FCG). With a roster of well-known natural gas firms, FCG is a well-balanced, well-positioned ETF that offers exposure to a red-hot industry.

High gasoline prices have once again pushed the idea of energy independence into the spotlight in the U.S. In today's announcement, the IEA submitted that natural gas could rise by more than 50% from 2010 levels and account for more than a quarter of global energy demand by 2035. A jump in natural gas use would hugely benefit many FCG holdings, including Cabot Oil & Gas ( COG), PetroHawk Energy ( HK) and Southwestern Energy ( SWN).

Rather than wading into the complex waters of derivatives trading and attempting to negotiate the ever-changing pressures put on derivative-backed fund managers, consider establishing a longer-term stake in the "golden age" of natural gas with FCG.

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