Commodities ETF Growing Like Wheat

The price of wheat leaped to a record high, taking a commodity exchange traded fund (ETF) to greater heights along with it.

On Friday, the Agriculture Department forecast that supplies will drop 40% from last year to a 60-year low in May,  according to Trang Ho for Investor's Business Daily. With that news, the PowerShares DB Commodity Index (DBC) hit a new high Friday.

The price of wheat has already doubled in the past year. Corn, soybeans, gold and platinum have also soared to new levels. With the current inflationary cycle heating up, commodities are viewed as more valuable than paper money.

Commodities via ETFs are often seen by investors as a safe haven, as they are not correlated to the direction of the U.S. stock market. DBC buys futures contracts of six highly traded commodities: crude oil, heating oil, wheat, corn, aluminum and gold.

There are numerous other ways to gain exposure to commodities through ETFs, either directly or through funds diversified across several commodities. A few of them:

• PowerShares DB Agriculture (DBA), up 18.3% year-to-date
• streetTRACKS Gold Shares (GLD), up 10.4% year-to-date
• iShares Silver Trust (SLV), up 15.9% year-to-date

For full disclosure, some of Tom Lydon's clients own DBA.

Online ETF Rating Services Advance

As the exchange traded fund (ETF) market and mutual fund industry grow, investment strategies are multiplying too. To help investors determine the stars from the duds, there is a new set of online tools designed to help, and they're free. Eleanor Laise for The Wall Street Journal reminds us of fund raters such as Morningstar and Lipper Inc., that have been rating funds for quite some time now based on returns and risk. However, the new tools give investors another way to slice and dice the fund world. For example, they can help investors decide if a certain fund belongs within their portfolio. Remember when you research funds online that fund ratings give you a base; don't rely on them solely. New rating services available online include:

1. Fundgrades.com - Fundgrades offers grades for each fund relative to any asset class users select.
   
2. etfguide.com/beta - This site isn't officially launched yet, but it already offers a useful tool to help understand which index an ETF tracks.
   
3. Indexuniverse.com - IndexUniverse recently launched a "fundamental ETF screener" that highlights ETFs that weight holdings based on fundamental factors.
4. rydexinvestments.com - Rydex Investments has a "trading expense calculator" tool that helps users decide whether it's cheaper to trade mutual funds or ETFs based on factors such as how often they trade and commissions paid to buy and sell.
   

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

ETFs Get a Triple A Rating From Moody's

The new Ameristock fixed-income U.S. Treasury exchange traded funds (ETFs) got a Aaa (triple A) rating from Moody's. These ETFs are part of the first real competition in the fixed-income arena for the ETF product category. They are based on Ron Ryan's Bullet Treasury Yield Curve Indexes and not the other, broader Treasury indexes currently used as benchmarks.

The triple A rated funds are:

• Ameristock/Ryan 1 Year U.S. Treasury ETF (GKA)
• Ameristock/Ryan 2 Year U.S. Treasury ETF (GKB)
• Ameristock/Ryan 5 Year U.S. Treasury ETF (GKC)
• Ameristock/Ryan 10 Year U.S. Treasury ETF (GKD)
• Ameristock/Ryan 20 Year U.S. Treasury ETF (GKE)

ETF Exclusive: Winners and Losers Revealed

Lipper ranks the best and worst performing funds, and this year exchange traded funds (ETFs) really popped on the radar. Four years ago, ETFs did not show on the "Leaders and Laggards" charts. However, during the first four months of 2007, 18 of the 60 funds were ETFs: 10 winners and 8 losers, reports Diya Gullapalli for The Wall Street Journal.

The 10 winners show that ETFs are a hot investment vehicle, and the eight losers illustrate some are vulnerable. The study also implies that ETFs and mutual funds are moving in opposite directions. The newer ETFs are focusing on diverse sectors and sub-sectors that have a narrow and limited focus, whereas mutual funds are spanning the asset allocation board, investing in big sectors and life-cycle funds.

The narrow focus of ETFs isn't necessarily bad. It can lead to extreme returns, both positive and negative. The broad array of ETFs can fill gaps in investors' portfolios in a way traditional mutual funds cannot. When researched and used correctly, specialty ETFs can tap into an area of the market previously unavailable.

Morningstar Expanding In ETF Arena

Morningstar is well known for their extensive mutual fund ratings, analysis and data and now they are reaching further into the exchange traded fund (ETF) segment of the industry. Their ETF coverage offers more premium analyst reports, an ETF exclusive subscription newsletter and their in-house indexes are being used more and more for the basis of new ETFs. 

John Spence for SmartMoney reports a trio of their indices were licensed to Claymore Advisors, while Barclays offers a suite of ETFs tied to Morningstar's stock benchmarks and First Trust Advisors offers a dividend ETF tied to a Morningstar index.  There are other style-box ETFs tracking indexes from S&P and Russell.  These ETFs tend to have more assets - over $1 billion per ETF - while Morningstar's average about $200 million.

Morningstar offers a yearly guidebook on ETFs; the 2007 issue reports on 150 of the biggest and most popular funds (there are over 500 ETFs currently available).  The ETFs receive a star rating if there is a 3-year history.  Morningstar uses their stock analysis for ETFs, looking for ETFs that have cheap stocks, and buy and hold them for the long term.

ETF Ratings Growing

The number of companies rating exchange traded funds (ETFs) is growing and the methods used to rate them are multiplying, too. XTF LP is the latest addition to the ETF rating genre. David Hoffman of InvestmentNews reports through subsidiaries, XTF Advisers and XTF Capital,they build and market ETF portfolios.  But last month the company launched a free web-based ratings service. They rate ETFs on 16 metrics over two broad categories- investment metrics and structural integrity.

The other ratings systems available for ETFs include AltaVista, which looks at aggregate earnings growth, PE ratios and dividend yields.  Morningstar rates ETFs the same way they rate mutual funds, on their risk-adjusted performance.

Naturally, this rating trend is a response to the popularity and success of ETFs.  The rating services provide investors with more tools and information to make their investment decisions.  As with any tool, one must know the differences and how to apply the ratings to their own research.