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Ana Armstrong: our smartest beta trades...ever
by Emma Dunkley on Jun 13, 2012 at 12:18
Shorting US natural gas
We added ETFS Short Natural Gas in October 2011, based on significant production growth due on new drilling technologies and shale gas production. There were also high roll costs because the natural gas curve was in steep contango. Also, new production may essentially become worthless because all storage could be filled by this summer. We closed our short in April this year, at a 250% profit. We will add the position again, if the natural gas price rises past $2.90/mcf (million cubic feet).
Selling gold in January
We sold ETFS Gold at a profit in January, after our analysis revealed that the correlation between gold and the S&P 500 went from zero around 10 years ago to 0.89 recently. So the correlation is very strong. The correlation has also gone up between gold and volatility as measured by the Vix, to 0.9. This is a signal that gold has become very speculative in the last couple of years, and also because of the global slowdown. So we shorted the gold ETC.
We were long gold at one point, with a position at 7%, and now we are 0%, having sold out in January.
Buying agricultural commodity ETC two years ago
Over the last two years, our agricultural ETC has returned 40%. There have been droughts in some areas and flooding in others, which has disrupted supply and boosted prices due to the crop shortages in certain commodities. This is a very successful trade we’ve held for a long time.
Long ETFS one-year forward crude ETF, short front month ETFS crude ETF
We have been long crude on the 12-month forward contract, and short the front month contract due to contango in the front of the curve and backwardation on longer dated contracts. We added the positions in May 2009 and continue to own it.
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