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Former J.P. Morgan Trader Launches First Ever Ethereum ETN

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For the first time, an Ethereum-focused investment product is available to traders on the Nasdaq Stockhom exchange, a sign that cryptocurrency is slowly making its way to more conventionalasset circles.

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The Launch of CoinShares Ethereum ETN

Beginning Wednesday, investors will be able to access two exchange traded notes (ETNs) with exposure to the Ethereum network. CoinShares, which is headed by former J.P. Morgan trader Daniel Masters, is offering ETNs that track the price of Ether Tracker One (COINETH:SS) and Ether Tracker Euro (COINETHE:SS).

The ETNs will differ from actively traded assets in that they will be completely passive.

The ether-based investments become the second major crypto asset CoinShares has listed on Nasdaq. It also gives Nasdaq Stockholm the distinction of being the only European exchange to offer exposure to two crypto-based assets (bitcoin and Ethereum).

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CoinShares has been called the iShares equivalent for cryptocurrency investments, as it now has six professional grade crypto-based investment vehicles. Collectively, these assets are valued at more than $300 million.

CoinShares Issues Statement

Ryan Rudolf, Co-principal to CoinShares, has issued the following statement:

Today is a historical moment for Ethereum and ether as an asset; and for the future of crypto-assets. It was a little over two years ago that the bitcoin ETNs began trading – offering investors exposure to bitcoin via an established exchange for the first time. Today, we are able to bring ether to the market and mark another major first. It is important to remember how far and how fast the space has matured in the less than 8 years since this revolution ban.

Daniel Masters, the other principal at CoinShares, says the new investment vehicles represent a “hassle-free” way to enter the world’s fastest-growing asset class. Whereas bitcoin disrupts the function of analog money and analog gold, Ethereum disrupts the function of the stock market, according to Masters.

Ethereum continues to be the world’s second-largest cryptocurrency when measured in terms of market cap.

Featured image courtesy of Shutterstock

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Commodities

A Sweet Trade

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Chocolates, the word itself is enough to elevate the mood because almost everyone loves them. Therefore, along with sweetening the taste buds, we have searched for a trade that is likely to sweeten the portfolio in the medium-term.

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Key points

  1. Cocoa prices are quoting near multi-year lows due to over supply
  2. Demand for cocoa products, however, remains strong
  3. History shows that cocoa production is cyclic in nature
  4. The top two producers are taking steps to support prices and avoid a glut in the future
  5. The risk to reward ratio looks attractive for a long-term trade

Cocoa, the main ingredient in chocolate making is quoting near its yearly low. However, we believe that the bottom is in place and cocoa is likely to rally in the medium-term.

What are the uses of cocoa

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Cocoa is derived from the cocoa bean and has a history of more than 5000 years. Cocoa is mainly used for making chocolates and its derivatives, something that everybody loves.

So, when cocoa is used for making such a popular product, why is its price quoting near yearly lows?

Price of every commodity is determined by the dynamics of demand and supply. In the case of cocoa, let’s see whether people have suddenly started disliking chocolates or are farmers growing cocoa in large quantities, causing a supply glut.

Chocolate consumption and cocoa production details

Source: Statista.com

The retail consumption of chocolate confectionery globally has seen a gradual uptrend from about 6.946 million tons in 2012/2013 to about 7.3 million tons in 2015/2016. The growth is likely to continue and consumption is expected to reach 7.696 million tons by 2018/2019, according to Statista.com. Between 2007 to 2015, the chocolate market had a compound annual growth rate (CAGR) of +2.3%, according to IndexBox.

Who were the major consumers?

In terms of total consumption, US is the clear leader followed by the UK and France. The world’s top two most populated nations, India and China are far behind. This shows that there is enough scope of growth.

But, is there any proof to show that chocolates have attracted new enjoyers other than the traditional consumers?

To understand this, let’s look at the per capita consumption.

Traditionally, Europe has been a large consumer of chocolates. In 2015, Switzerland was the global leader with a per capita consumption of 8.8 kilograms, closely followed by Germany at 8.4 kilograms. However, according to global market intelligence agency Mintel, sales were flat in the US, UK, Germany, and France between 2015 and 2016.

Nevertheless, while the traditional consumers are plateauing, new consumers are warming up to chocolates and its derivatives.

Russia’s cocoa consumption had an annual growth of 18.1% between 2007 and 2015, which has propelled its per capita consumption to 7.3 kilograms, the third highest in the world.

Similarly, the analysts now expect India to provide the next leg of growth. From 2015 to 2016, India’s chocolate confectionery in retail markets grew by 13%. It is not a one-off growth number because between 2011 to 2015, India recorded a CAGR of 19.9% and the growth is only expected to improve to a CAGR of 20.6% between 2016 to 2020, according to Mintel.

So, it is safe to assume that the growth in chocolate sales is likely to continue for the next few years. Now, let’s look at the supply picture.

Who are the major suppliers of cocoa in the world?

While cocoa consumption is a feature around the world, the production is concentrated in West Africa, which produces about 70% of the world’s cocoa. The world leader in production is Côte d’Ivoire, which alone produces about 30% of the total global production.

The next largest producer is Ghana, which accounts for above 20% of the world’s cocoa production. Third is Indonesia, which is comparatively a newcomer to the group. However, its farms are being infested by the ‘pod bearer insect’, which has resulted in poor roots and poor-quality cocoa bean, severely limiting their rise as a cocoa superpower.

Cocoa bean production over the past decade?

Similar to the consumption of chocolates, cocoa production has increased sharply over the past decade. However, the rise has not been constant. 2010/11 and 2013/14 were bumper years, which were followed by a dip in the following two years.

Including the forecast for 2016/17, there have been five years when production increased, while production fell in the other five years. Nevertheless, the percentage of rise during the up years has been greater than the fall during down years, therefore, production has more or less kept up pace with the increased consumption of cocoa-based products.

The cocoa market keeps shifting from surplus to deficit, as seen in the chart above. Therefore, it is safe to assume that the markets will again fall into a deficit, which will be bullish for cocoa prices. Let’s see the supply and consumption pattern for this year.

So, what is the latest demand and supply situation?

In 2016/17, the International Cocoa Organization expects the global production to increase sharply over 2015/2016, contributing to a global surplus of 371,000 tonnes. A bumper crop in West Africa is likely to keep prices depressed in the near term. Ivory Coast’s bean arrival at the ports from the start of the season to August 20, was 12.6% higher than the previous year.

As a result, Rabobank believes cocoa prices are unlikely to rally a lot above $2000 per MT in the short-term, however, they are bullish in the long-term due to increasing demand.

“The further we go in time, the more bullish our forecast gets,” said Carlos Mera, a commodities analyst with the bank, reports confectionerynews.

In September, the ICCO said: “Major chocolate manufacturers have generally reported improved sales volumes and the low international cocoa beans price is anticipated to encourage cocoa processing activities.”

The sales of candy in the US was up 1.4% year over year and the trend was showing signs of improvement, as the latest four weeks sales increased 2.8% year over year, according to IRI/Bloomberg Intelligence, the Morningstar reported on August 25.

Low prices are pinching the major producers

Ivory Coast and Ghana, which account for over 60% of the global supply of cocoa are struggling due to the fall in cocoa prices. Therefore, they plan to build warehouses to stock the beans during bumper crop season and release them in the market, according to the demand, thereby increasing their influence over cocoa pricing.

“Must we continue on this path, flooding the market with beans in abundance and driving down prices to the detriment of our economies and people? We don’t think so,” said Narcisse Sepy Yessoh, chief of staff to Ivory Coast Trade Minister Souleymane Diarrassouba, reports Reuters.

They have sought a loan of $1.2 billion from the African Development Bank for the above activity, which is likely to be approved by the end of this year and the stocking is likely to start in the 2018/2019 season.

This will put a floor beneath cocoa prices in the medium-term.

How does the technical picture look?

The long-term chart of cocoa futures shows a trading range between $1800 to $3400. This is a well-defined range. An attempt to breakout the range failed in 2011, similarly, attempts to breakdown of the range failed between May and July of this year.

The risk to reward ratio to play the range is attractive. We have a well-defined stop loss below the lows of the range, whereas, our target objective is a rally back to the upper end of the range. However, it will be difficult for the readers to hold cocoa futures for the long-term. Therefore, the next best way is to play it through the two available ETNs, NIB and CHOC.

As NIB is more liquid, we prefer to invest in it. Let’s look at its chart.

Unlike cocoa futures, NIB broke below the lows made in end-2011 and formed a new low at $21.17. It has formed a bearish descending triangle pattern, which will complete on a close below the $21.17 levels. Therefore, we shall initiate 50% of our trade when NIB breaks out of the triangle and 50% of the positions on dips. Let’s determine the specific levels from the daily charts.

NIB has fallen below the $22 levels four times since May of this year. The downtrend line has been a major hurdle to cross. On Friday, NIB again returned from the downtrend line. Therefore, if it again falls closer to $22 levels, a long position with 50% allocation can be initiated. The remaining 50% position can be initiated on a breakout of the descending triangle pattern. The positions can be closed if NIB breaks down and closes below 21 for three days in a row. Once NIB breaks out of $27 levels, its next technical target is $33, though its long-term target remains $45.

 

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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ETFs

Three Country Exchange Traded Funds Offer Potential For Investors

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Country exchange traded funds (ETFs) that invest in specific countries’ stocks offer a way to gain exposure to foreign equities, according to Investopedia. The funds can include alternative investments, foreign currencies and commodities.

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Three such country ETFs have demonstrated strong uptrend over a long term but have experienced recent pullbacks, providing an opportunity to get in before the next upside wave begins. This obviously assumes the uptrend will continue, but in these cases, signs of weakness have been small.

iShares MSCI Taiwan Capped ETF (EWT)

Source: Investopedia

iShares MSCI Taiwan Capped ETF (EWT) has been steadily rising all year. In June, shares hit a 52-week high, and shares were up roughly 38.7% from their 52-week low price of $26.38 per share.

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After hitting a high of $37.49 on Aug. 8, the price fell near $36. If the price rallies above this mark, traders should consider a purchase. At the same time, if the price falls in the short term, traders could consider buying between $36 and $35.60.

The next upside target is $37.75 – the top of the channel. Traders could place a stop/loss order under the most recent low swing just prior to entry. If, for example, the price rises over $36.50, the most recent swing low would be $35.96. If it keeps falling in the short term, the most recent swing low would be $35.30.

EWT invests its assets in 92 securities, focusing on the Taiwanese equity market. However, with more than a fifth of the total exposure on a single company, Taiwan Semiconductor, EWT has a concentration risk.

Hon Hai Precision Industry takes up the second position in the portfolio with a 10.11% share. The rest of the stocks do not comprise more than 2.78% of the fund.

EWT relies strongly on information technology (57.8%), financials (16.8%) and materials (9.4%). It has an expense ratio of 64 basis points

Business optimism remains high in Asia. This, combined with a gain in tech shares, created a positive situation for the fund. Bullishness on the fundamentals of Hon Hai Precision Industry and Taiwan Semiconductor sent Taiwan shares to a 27-year high.

Wisdom Tree India Earnings Fund (EPI)

Source: Investopedia

Wisdom Tree India Earnings Fund has experienced a strong uptrend since early 2017. After reaching a $26.90 high on Aug. 7, the price fell back to the rising trendline at $25.30. The price has already moved from the trendline area, trading at $26.10 on Aug. 16.

Patience is needed in allowing the price to move closer to the trendline before making a purchase. Should the price fall near $25, a stop/loss could be put below $24.20. The upside target is $27.30, which is above the former high.

EPI, with $1.7 billion, is more than nine years old and one of the biggest U.S.-listed India ETFs. EPI year to date is up 26.3%, an advantage of 620 basis points above the MSCI Emerging Markets Index.

India’s economic potential as the world’s biggest democracy and second largest country by population after China has long been heralded. That potential, as measured by EPI, will come to fruition and could continue to do so for several years to come.

Ridham Desai, head of research for Indian equities at Morgan Stanley, said the economic and earnings growth cycle is improving and should support earnings per share growth of 20% per year for the next five years.

During 2003 to 2008, the last major growth cycle, earnings compounded at 39% per year, according to the fund. EPI only holds profitable Indian companies. Its underlying index weights components are based on earnings before its index rebalance, which is a unique strategy among legacy India ETFs.

Historically, Indian stocks are volatile than broader emerging markets benchmarks. EPI, however, has a track record of superior risk adjusted returns. In the last three years, EPI has been 200 basis points more volatile than the MSCI Emerging Markets Index. The ETF is nonetheless up 17.9% over that period compared to 1.2% for the MSCI index.

iShares MSCI Mexico Capped ETF (EWW)

Source: Investopedia

iShares MSCI Mexico pulled back to its rising trendline in August since reaching a $57.72 high two weeks prior. The trendline intersects slightly below $56, where the price stalled in trading between Aug. 9 and Aug. 11.

By Aug. 16, the price traded at $57.11. It will take patience to see if another purchasing opportunity arrives near $56. Whether or not another opportunity occurs, upside target is $59 to $59.50. A stop/loss could be put beneath the recent low of $55.47, but it might make sense to give the trade more room should the price fall back to the entry point and wiggles for a week or two, which often happens.

In addition to concerns about the impact of the U.S. presidency on Mexican stocks, EWW flailed last year because the peso fell. However, EWW is not a currency-hedged ETF, meaning there is no mechanism by which the ETF can benefit from the dollar strengthening against the peso.

While Mexico’s economy is largely export driven, because EWW not currency hedged, a falling peso does not benefit investors in this ETF. With the peso now one of this year’s best performing emerging markets currencies, EWW is benefiting.

Traders see more upside to the Mexican peso. Bloomberg reported that the U.S. Commodity Futures Trading Commission reported professional traders are bullish on the peso for the first time since May. There was a fund dedicated to the peso at one time, but it was shuttered years ago, leaving EWW as the most direct play on the Mexican currency.

EWW often trades at a premium to broader emerging market benchmarks. It holds 62 stocks. More than 45 percent of the fund’s lineup is in consumer staples and financial services.

Some of the bullishness this year can be credited to financial markets realizing that Trump is the U.S. president and despite his campaign rhetoric aimed at Mexico, the two countries’ relationship is mostly unchanged at the moment.

EWW and Mexican stocks are not fully in the clear. A Trump effort to renegotiate the North American Free Trade Agreement poses a possible risk. However, any trade talks are likely to include a push by Mexico to keep the peso stable.

These three country ETFs have exhibited strong uptrends, and there is no significant evidence to suggest the uptrends are over yet. Hence, the pullbacks present buying opportunities. When the price falls back to a trendline, it is a potential trade area, but traders need to be sure the possible reward outweighs the risk and they aren’t attempting to catch a “falling knife.”

EPI, for instance, experienced a hefty fall during the pullback, which is cause for concern. But if the price drops again and stabilizes near the trendline, the selling could lose momentum. This is positive for the bulls. In all trading, one can only put the odds in their favor and risk a small portion of account capital on any single trade.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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Analysis

3 Commodity ETFs Pose Caution In July

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Three commodity exchange traded funds (ETFs) have a tendency to rise or fall in July, indicating both opportunity and risk for investors, according to Investopedia. Two of the ETFs have a strong bearish bias while one has a long-term historical tendency to rally, although in recent years it has been slammed lower.

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Investors are advised to use seasonality in conjunction with other fundamental or technical criteria, as it only shows what happened in the past and not necessarily what will happen this July. It is important to consider factors like targets, stop-losses and entries before trading the ETFs based on seasonality.

United Natural Gas Fund (UNG)

Source: Investopedia

The United States Natural Gas (UNG) fund, an ETF designed to track in percentage terms the movements of natural gas prices, has struggled in July over the last four years. UNG’s price has lost 5.8% on average and never closed the month higher than it opened. Even in 2016, when the price rallied, natural gas prices struggled through July and August.

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UNG’s investment objective is for the daily changes in percentage terms of its shares’ net asset value to reflect the daily changes in percentage terms of the natural gas price delivered at the Henry Hub, La., as measured by the daily changes in the benchmark futures contract minus expenses.

The fund offers commodity exposure without using a commodity futures account. It offers equity-like features such as intra-day pricing and market, limit and stop orders.

Over the last 19 years, natural gas futures have dropped in July 68% of the time and lost 2.9% on average. The fund has been struggling in 2017, but recently, it bounced off support near $6.50. The seasonality factor, however, points to a re-test of the support area.

In April, natural gas futures rose 2% when a report indicated natural gas supply growth already peaked. Inventories rose by 2 billion cubic feet following an April draw of 43 billion cubic feet, which fell far short of expectations that supply would increase by 7 billion cubic feet.

Natural gas futures increased 0.7% following the news.

Natural gas reached its 52-week low in April 2016 of $2.64, followed by increased volatility due to unseasonably warm weather that crimped its bull run in early 2017. From mid-February to April 2017, natural gas reversed course and stayed 8.8% up from the year’s start.

UNG did not follow suit, however, rising only 0.9% and was down 16% on the year. UNG has witnessed a decline in its net asset value due to transaction and borrowing costs despite its underlying asset gaining in value.

iPath Bloomberg Sugar ETN (SGG)

Source: Investopedia

The iPath Bloomberg Sugar ETN (SGG), designed to provide exposure to the Bloomberg Sugar Subindex Total Return, has lost value every July for the last three years, dropping an average of 9.7%. While this strikes of bearishness, it is actually a recent phenomenon. The outlook for July improves in reviewing the results over four additional years.

The price over the last nine years has increased in July 67% of the time, gaining 2.9% on average. There have been some big loss years of late, but there were bigger positive years previously.

Sugar futures contracts have increased 68% of the time over the last 19 years, rising 4.8% on average.

The Sugar ETN suffers a downtrend at the present time, having dropped steadily since March. $25 to $24 to is a plausible support area, since that is where SGG bottomed in 2015.

ETNs are riskier than ordinary unsecured debt securities and offer no principal protection. The ETNs are unsecured debt obligations of Barclays Bank PLC, the issuer, and are not, directly or indirectly, guaranteed by any third party, according to Barclays Bank PLC.

Any payment made on the ETNs, including at maturity or upon redemption, relies on Barclays Bank PLC’s ability to satisfy obligations as they come due.

The index reflects the returns potentially available through an unleveraged investment in the futures contracts on sugar. It currently consists of one futures contract on sugar that is included in the Bloomberg Commodity Index Total Return.

Owning ETNs is not the same as owning interests in the commodities futures contracts comprising the index or a security directly tied to the index performance.

Most of the world’s supply of sugar is not traded on the open market. It is also highly subsidized in its countries of origin, which can make it impossible to determine its true supply and demand. All governments, to some extent, intervene with the growth and production of sugar in their country.

Teucrium Corn ETF (CORN)

Source: Investopedia

The Teucrium Corn ETF (CORN), which provides investors unleveraged, direct exposure to corn without the need for a futures account, has also had rough Julys as of late. It has fallen every July in the past four years, posting average declines of 8.9%.

CORN was created to minimize the effects of rolling contracts by not investing in front-month (spot) futures contracts, thereby limiting the number of contract rolls every year.

The futures contract offers a longer historical precedent as the ETF has existed for only eight years. Over the last 19 years, corn futures have increased only 32% of the time in July, shedding 3.4% on average.

The ETF has ranged since mid-2016. At the beginning of June, the price tumbled from the top of the range.

The ETF currently trades around $18.50, which could represent a support area according to the range.

If selling continues as history indicates, the next fall could take the price beneath $17.68, the August 2016 low.

Corn futures, which are traded on the Chicago Board of Trade, trade according to loose seasonal patterns. This is mainly on account of the seasonal availability of corn in the cash market. While these trends may not always work alone, they often work in conjunction with other fundamental and technical indicators.

Most farmers and professional grain traders know these trends. Farmers use them to initiate hedge positions and as a guide as to when cash corn should be sold. Traders use the knowledge to back up an existing indicator.

Most seasonal charts indicate the corn market is at its weakest prior to and during the harvest, which is generally between September and November, when North American farmers harvest corn and deliver it to local elevators. The lows occur because of the supply of cash corn that gets thrown into the market. High supplies, as with any market, equate to low prices.

Most traders use these indicators to confirm another signal, be it technical or fundamental. They should not trade using seasonal trends alone, since outside market forces can have a major impact.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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