ETF Allure in Coal, Oil

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...commodity-based ETFs have seen a substantial increase in investment. They grew +17% from a small base during the past six-week period. Oil and natural gas funds played an important, but not dominant, part of the growth.

...The transparency of exchange-traded funds (ETFs) helps make them quite liquid, and because they can be bought and sold like single stocks at any point of a trading day, they reflect the changing attitudes of the investing public much more readily than mutual funds. This provides shorter-term price swings that often get overdone, much like in single stocks. Information technology has transformed the transaction process from a clubby, privileged, intensely manual operation to one that is highly automated and efficient.

ETFs serve several purposes besides just the objective of increasing your wealth, like providing protection from expected general market adversity, ensuring liquid reserves, broadening geographic investment diversity, or gaining access to alternative financial instruments and markets. The simplest ETF role is to obtain a general equity (or other) market participation while determining a more specific investment action, a fine tuning that could take place later. Here the big broad-based ETFs, like SPY, QQQQ, DIA, IVV or VTI do the heavy lifting, with the whole group making up a bit more than one third of all ETF investments.

A second group of ETFs provides the means of implementing specific strategy and tactic decisions. This kind of portfolio parsing can get pretty involved and sophisticated. At that level it really is most suited to fairly large investments, so the bulk of this activity is pursued by investment professionals. Since their scale of operation is the kind that moves prices, we want to keep an eye on where they seem to be going...

During the past month and a half, the pros favored additions to mid-cap growth and small-cap growth ETFs. But they pulled even larger amounts ($775 million) from all value styles and from big-cap growth stocks.

The energy-related ETFs are up by +11%, and the tech ones are up +1%, even though most of those stocks are flat to down. Virtually all overseas areas have been hit, except for Latin America, which saw increases of +6%.

Finally, commodity-based ETFs have seen a substantial increase in investment. They grew +17% from a small base during the past six-week period. Oil and natural gas funds played an important, but not dominant, part of the growth.

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