Williamstown, MA, June 22, 2008 --(PR.com
)-- It should come as no surprise to anyone who has to buy gasoline, heating oil, natural gas or any other petroleum product—PowerShares DB Energy, which began trading on Jan. 5, 2007, has had a spectacular run as the ETF approaches its 18-month anniversary and spends its 3rd week at the top of PowerShares Momentum Tracker commodity momentum table.
Powershares Momentum Tracker is a member of Don Dion’s Fidelity Independent Adviser family of newsletters. Dion, publisher of Fidelity Independent Adviser, and chief investment officer of Dion Money Management, began publishing the flagship newsletter, Fidelity Independent Advisor, 11 years ago. Recently that newsletter was ranked by Mark Hulbert as one of the top ten financial newsletters with best market adjusted timing.
In his latest edition of PowerShares Momentum Tracker, Dion presents DBE’s fund profile and discusses the question of market timing.
DBE’s return since inception is 115.2%, including a 49% year-to-date gain (through June 13) and a 27.6% jump in the last three months, all better than 89% of energy ETFs.
DBE invests directly in futures contracts, exchange-traded instruments promising the delivery of oil at a predetermined price on a future date. Essentially, the fund bets on the price of five energy commodities—Bbrent crude oil, heating oil, light crude, natural gas, and RBOB (reformulated gasoline blendstock for oxygen blending) gasoline.
The fund generates returns from fluctuations in the price of the commodities; from interest on Ttreasury bills used to collateralize the futures contracts; and from rolling contract yields, thanks to the PowerShares DB Optimum Yield model.
Prices for four of the five have been rising for several years and hovering at or near record highs for several months, the key reason for DBE’s sparkling returns. The fifth, natural gas, is also up sharply in recent months.
On Monday, for example, Brent crude was 89% more expensive than it was a year ago, while RBOB gas was 49% higher. Spot prices for Henry Hub natural gas—which make up just 10% of the fund’s base weighting, compared to an equal 22.5% stake in each of the other four—were up 64% over the last year, to $12.49 per million British thermal units.
The fund’s daily index weightings vary due to fluctuations in price, and the index is rebalanced to the base weights annually during the first week or so of November.
Dion claims that while “the mix makes DBE more diversified than PowerShares DB Oil or the popular United States Oil Fund (USO)—which has taken in nearly $1 billion versus $168 million for DBE and $85 million for DBO—this fund is clearly not a diversified fund.”
Dion goes on to say that “DBE is not part of our PowerShares Momentum Tracker Portfolio because we gain exposure to oil through the DB Commodity Index Tracking Fund, which also tracks aluminum, corn, gold and wheat.”
Dion has not held back from adding different commodities. Dion notes that “I added DBC to the portfolio last November, and since then it has a 52% unrealized gain through June 18th.”*
But can that continue? Commodity investing is always risky. And the long, seemingly merciless run-up in prices for the energy commodities that make up 90% of DBE’s assets only magnify that risk. Dion continues to prefer the diversity offered by DBC.
The bottom line: No one knows what’ll happen next, though more and more experts are saying that $150-$200 oil is realistic over the next six to 12 months. While that would be good news for DBE shareholders, it may come with potentially violent swings, both up and down.
* Through June 18, 2008.
Period * Mkt.
Return +/- Index**
1 week +0.03% +0.12
1 month +7.13% +11.54
3 months +27.77% +21.65
Year to date +47.49% +53.95
1 year +82.96% +92.44
Commodity Index weight Expiration
Brent Crude 22.19% 8/14/2008
Heating Oil 23.97% 5/29/2009
Light Crude 22.19% 6/22/2009
RBOB Gasoline 21.35% 4/28/2009
Natural Gas 10.29% 4/28/2009
* as of 6/16/08
About Don Dion
Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors Don’s commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the United States 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. http://www.fidelityadviser.com/
Mr. Dion is also president and founder of Dion Money Management, 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, Massachusetts, Dion Money Management manages more than $750 million in assets for clients in 49 states and 11 countries. A licensed attorney in Massachusetts and Maine, Mr. Dion has more than 25 years’ experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management. http://www.dionmm.com/