As the U.S. speeds toward the fiscal cliff, many investors are
looking to decrease risk in their portfolios.
Research from U.S. Global Investors shows that owning commodity
equities can reduce volatility and increase returns in a portfolio:
“In a portfolio of 25% commodity equities and 75% U.S. stocks, an
investor reduces their risk by almost 1% while increasing their returns
by nearly 1.5%“.
It therefore makes sense that a very simple way to reduce risk
while staying invested is with commodity ETFs.
But be forewarned. While the right commodity ETF can help you
reduce volatility and boost returns, not all ETFs are created equal. Many
are junk, in my opinion.
You won’t find the term “Exchange Traded Junk” on Investopedia. But
that doesn’t mean these types of securities don’t exist. They do.
The best way to show the hidden pitfalls of Exchange Trade Junk is
by example. And none provides a better example than a certain ETF
targeting natural gas – a red-hot commodity that has risen 27% over the
last six weeks.
At first glance, the United States Natural Gas ETF (NYSE:
UNG) appears to be an easy way for