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moneysense.ca, 19/08/10
This and That: Sponsored research, ticker symbols, leverage and more…
- This paper is brought to you by… The Wall Street Journal reported that an increasing number of academic studies into financial products and services are paid for by the firms themselves. What is alarming is that these studies frequently disclose sponsorship in pint-sized print or not at all.
- A clever ticker symbol does not equate to a smart buy. Jason Zweig on a bizarre court battle over ETF ticker symbols.
- Is leverage worth the risk? Two investment professionals debate both sides of the issue. (Hat tip to Riscario Insider for the link).
- Michael James on Money crunches the numbers on putting in a backyard pool.
- Million Dollar Journey has some tips for saving money when eating out.
- It takes two to contango (as a reader put it). Preet shares his views on a new ETF that promises to address the front-running experienced by commodity ETFs.
- Money Smarts Blog on the eight things you need to know about withdrawing money from a RESP account.
- Larry MacDonald says Manulife Financial’s recent stock slide is awakening his contrarian instincts.
- Invest in the Markets is following up his series on fundamental valuation metrics with a new series on technical indicators.
- My Own Advisor shares his favourite financial and investing quotes.
- The Financial Blogger opines that Canadians investing in the US market are getting a double boost from a strong loonie and an unloved asset class.
Just a quick reminder that you can read my posts in your favourite reader or delivered by e-mail. Have a great weekend everyone!
moneysense.ca, 19/08/10
Jason Zweig’s piece on the battle over ticker symbols is interesting. I tend to be pretty paranoid about making a mistake when making a trade, but I could easily make a mistake if two similar tickers differ only i a trailing “S”. Thanks for the mention.
That should have been “… only in a trailing …”. I got caught by the ad that overlaps the text entry box obscuring my typed text.
I’ve read the articles on commodity futures but I’m still confused by this contango phenomenon. Why doesn’t the future price equal the spot price plus the annualized riskless rate of return and annualized storage costs?
When contango is present, why don’t arbitrageurs take a short position by borrowing funds to purchase and store the commodity and then purchase a future at the higher selling price and lock in the difference?
I just don’t understand why the price differences aren’t arbitraged away.
Thanks for the link Ram. I was perturbed at hearing about the “bought” research studies.
Mike
I didn’t buy Manulife after their shares “cratered” in price – but I did jump into their competitor, Sun Life Financial after their stock’s recent plummet. It seems they’re both plagued by the same affliction.
@Bill: I’m not an expert in this by any means. But my understanding is that the contago here is large but not large enough to be arbitraged away by the method you suggest. Otherwise, it would be arbitraged away to spot price plus cost of funding plus storage plus insurance. Anything over that is riskless profit.
The point is that contango doesn’t have to be as large. Even if it is small but consistent, these ETFs will steadily losing money over time. You may also be interested in Larry Swedroe’s take on the subject:
http://moneywatch.bnet.com/investing/blog/wise-investing/will-commodities-wreck-your-portfolio/1605/
http://moneywatch.bnet.com/investing/blog/wise-investing/how-commodities-affect-a-portfolio/1608/
http://moneywatch.bnet.com/investing/blog/wise-investing/commodities-as-portfolio-insurance/1612/
http://moneywatch.bnet.com/investing/blog/wise-investing/the-pitfalls-of-commodities-and-indexing/1614/
@Phil: I saw that SLF is yielding almost 5% as well. You may well be right that it may be time to load up on the insurers since they are lagging relative to the banks of late. I’m out of individual stocks but I have XDV and SLF in my radar screen for our TFSA accounts. In another 4 months, we’ll get another $5K of contribution room and I’m thinking I’ll take some more risk in TFSAs, which until now has been in cash.
@CC. Completely agree on the dividend yield issue. It isn’t very frequent that a TSX30 company is yielding north of 5.5%. I figured it’s worth taking a flyer on it.
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Thanks for the mention CC!
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