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Commodity ETFs: It pays to do the research

By Emily Doak, Managing Director of ETF Research for Charles Schwab Investment Advisory.
Just because an investment drops in value doesn’t mean it’s a bargain.
The post Commodity ETFs: It pays to do the research first appeared on ETF Strategy.

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By Emily Doak, Managing Director of ETF Research for Charles Schwab Investment Advisory.

Commodity ETFs: It pays to do the research

Commodity ETFs: It pays to do the research.

Just because an investment drops in value doesn’t mean it’s a bargain. That’s a lesson many investors learned the hard way back in April when they scooped up shares of a popular oil ETF after the spot price of crude dropped below zero.

Contrary to some investors’ expectations, the ETF continued to struggle for several days after the price of oil recovered. So where did investors go wrong?

What they thought was a fund that tracked the spot price of West Texas Intermediate crude – the US benchmark for oil – was in fact a fund that tracked the benchmark’s futures contracts, which can produce very different returns.

With any fund, but especially those that track commodities, it’s important to understand the fund’s strategy before you buy. Here are three questions to ask when researching commodity ETFs for your portfolio.

  1. Does it hold physical assets or futures?

Some precious-metal ETFs actually purchase the physical commodities – such as bars of gold or silver – and warehouse them in secure vaults. These ETFs tend to closely track the spot price of the commodity in question because the metals can be retrieved and sold on the spot market at any time.

However, most commodities – including livestock, oil, and wheat – are too costly or cumbersome for an ETF to transport and store. Instead, ETFs typically invest in these commodities via futures contracts, which are agreements to buy a commodity on a future date for a specified price, with the intention of selling the contract before it expires rather than taking possession of the commodity in question.

As a result, ETF managers must regularly sell expiring contracts and purchase new ones with later expiration dates – with two potential consequences:

  • When contracts approaching expiration have higher prices than those with expiration dates further out, ETFs are effectively selling high and buying low with every contract rollover – a condition known as backwardation. This happens when the current demand for a commodity is higher than investors expect it to be in the future, relative to its supply.
  • Conversely, when contracts approaching expiration have lower prices than those with expiration dates further out, ETFs are effectively selling low and buying high with every contract rollover – a condition known as contango. This happens when the current demand for a commodity is lower than investors expect it to be in the future, relative to its supply.

While contango obviously isn’t ideal, fund managers often invest in futures contracts of various durations to help mitigate its effects.

A fund’s prospectus will tell you whether the ETF relies on physical assets or futures contracts. Schwab clients can log in, search its ticker symbol, and click the Prospectus link.

  1. How volatile is it?

Commodity ETFs are notoriously volatile because of the supply-and-demand characteristics of their underlying holdings, which can be dramatically impacted by certain events. Unseasonably cold or wet weather, for example, can be catastrophic to some agricultural commodities, while OPEC (to say nothing of COVID-19) can unduly influence oil prices.

One solution to this potential problem is to consider ETFs that track a broadly diversified commodity index. That said, the degree of diversification will vary by index. For example, 61.7% of the S&P GSCI Commodity Index is allocated to the more-volatile energy sector (as of May 2020), while the Bloomberg Commodity Index’s allocation is roughly a third of that, at 23.4% (as of July 2020).

  1. What is its tax treatment?

The complexities of commodity ETFs can also create unusual tax issues. Funds with direct ownership of precious metals, for example, are taxed as collectibles under US rules. Depending on your income tax bracket, the tax bill for this investment may be higher than the long-term capital gains rate or even your ordinary income tax rate.

Funds that invest in futures and other derivatives contracts, on the other hand, may be structured as partnerships, meaning you get a K-1 tax form at the end of the year instead of the typical 1099. To avoid the complications and added expense K-1s can create at tax time, some newer funds pass their investments through an offshore entity, which allows the fund to be taxed like a traditional mutual fund. However, it’s important to note that such funds are actively managed and may offer less visibility into their underlying holdings.

Know your fund

Investing in commodity ETFs can be a low-cost way to add diversification and inflation protection to your long-term portfolio. However, if you’re looking to make shorter-term tactical moves, be sure you understand how the ETF you’re considering is constructed, since a fund’s volatility, in particular, can have an outsize impact on your short-term prospects.

(The views expressed here are those of the author and do not necessarily reflect those of ETF Strategy.)

The post Commodity ETFs: It pays to do the research first appeared on ETF Strategy.

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Science

Record Number Of New York Residents Changing Driver’s Licenses To Florida

Record Number Of New York Residents Changing Driver’s Licenses To Florida

An analysis of official data reveals that a record number of New…

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Record Number Of New York Residents Changing Driver's Licenses To Florida

An analysis of official data reveals that a record number of New York residents changed their driver's licenses to Florida last month.

According to the New York Post, a total of 5,838 New Yorkers made the switch in August - the second-highest number for a single month in recorded history - and which makes for a year-to-date figure of 41,885 New Yorkers who have abandoned their northern licenses after moving south - a pace which points to a new annual record.

"First it was the billionaires. Then it was the rich following behind them. Now you have the middle class," said Renowned fashion designer Alvin Valley, who moved his primary residence to Palm Beach during the pandemic, adding that the influx of residents has been 'staggering.'

Photo by Johnny Nunez/WireImage

"A lot of families just began to feel like New York was becoming unlivable," Valley continued. "Especially for younger couples with kids in their 30s and 40s. They don’t want to get on the subway. It’s a safety issue, it’s a schools issue."

A retired NYPD lieutenant who moved with his family to Jacksonville last year told The Post that New Yorkers still have a buffet of reasons to bid farewell.

John Macari blamed COVID-19 mandates, rising crime and unappealing schools for the continued departures.

He argued that vaccine mandates for public-sector employees left thousands of working-class New Yorkers disillusioned with city government and eyeing the exits.

“Couple that with the rise in crime and zero competence from our elected officials and a lot of people just don’t see a future in New York City for themselves,” Macari said.

The Brooklyn native, who runs a Jacksonville livery service staffed by retired NYPD cops and hosts a podcast featuring ex-officers, said he talks to friends every day who want out. -NY Post

Last month, New York Mayor Eric Adams tried to stem the flow - deploying digital billboards throughout Florida to try and convince ex-New Yorkers to return to the Big Apple.

Tyler Durden Wed, 09/28/2022 - 23:20

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Economics

DryEyeRhythm: A reliable, valid, and non-invasive app to assess dry eye disease

Dry eye disease (DED) is a condition characterized by an array of different symptoms, including dryness, ocular discomfort, fatigue, and visual disturbances….

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Dry eye disease (DED) is a condition characterized by an array of different symptoms, including dryness, ocular discomfort, fatigue, and visual disturbances. This condition has become increasingly common in recent years owing to an aging society, increased screen time, and a highly stressful social environment. There are about 1 billion people, worldwide, who have DED. Undiagnosed and untreated DED can lead to a variety of symptoms, including ocular fatigue, sensitivity to light, lower vision quality, and a lower quality of life. Given the widespread prevalence of the condition, this can further lead to reduced work productivity and economic loss.

Credit: Juntendo University

Dry eye disease (DED) is a condition characterized by an array of different symptoms, including dryness, ocular discomfort, fatigue, and visual disturbances. This condition has become increasingly common in recent years owing to an aging society, increased screen time, and a highly stressful social environment. There are about 1 billion people, worldwide, who have DED. Undiagnosed and untreated DED can lead to a variety of symptoms, including ocular fatigue, sensitivity to light, lower vision quality, and a lower quality of life. Given the widespread prevalence of the condition, this can further lead to reduced work productivity and economic loss.

 

Despite the obvious disadvantages of DED, a large portion of the population remains undiagnosed, which ultimately leads to increased disease severity. DED is currently diagnosed through a series of questionnaires and ocular examinations (which can be invasive). But this method of diagnosis is not ideal. DED examinations do not always correspond with  patients’ subjective DED symptoms. Furthermore, non-invasive and non-contact dry eye examinations are required in the COVID-19 pandemic. These flaws point to a need for a simple, reliable, and accessible screening method for DED to improve diagnosis and prognosis of the disease.

 

To answer this need, a research group, led by Professor Akira Murakami and Associate Professor Takenori Inomata of the Juntendo University Graduate School of Medicine, developed a smartphone application called DryEyeRhythm. “DryEyeRhythm leverages the cameras in smartphones to measure users’ blink characteristics and determine maximum blink interval (MBI)—a substitute for tear film breakup time, an important diagnostic criterion of DED,” explains Associate Prof. Inomata. “The app also administers Ocular Surface Disease Index (OSDI) questionnaires, which are also a crucial component of DED diagnosis.

 

To validate the usefulness of the app, the research team conducted a prospective, cross-sectional, observational, single-center study, the results of which have been published in

The Ocular Surface (available online on 25 April 2022 and published in volume 25 in July 2022).

 

For their study, the team recruited 82 patients, aged 20 years or older, who visited the ophthalmology outpatient clinic at the Juntendo University Hospital between July 2020 and May 2021. The participants completed the Japanese version of the OSDI questionnaire (J-OSDI) and underwent examinations for MBI, both via the app and via other analysis techniques.

 

The study revealed that the J-OSDI collected with DryEyeRhythm showed good internal consistency. Moreover, the app-based questionnaire and MBI yielded significantly higher discriminant validity. The app also showed good positive and negative predictive values, with 91.3% and 69.1%, respectively. The area under the Receiver operating characteristic (ROC) curve—a measure of clinical sensitivity and specificity—for the concurrent use of the app-based J-OSDI and MBI was also high, with a value of 0.910. These results demonstrate that the app is a reliable, valid, and moreover non-invasive, instrument for assessing DED.

 

Non-contact and non-invasive DED diagnostic assistance, like the kind provided by DryEyeRhythm, could help facilitate the early diagnosis and treatment of patients, as well as, DED treatment through telemedicine and online medical care,” says Associate Prof. Inomata. The research team plans to further validate its results by conducting a multi-institutional collaborative study in the future. They are also planning to obtain medical device approval and insurance reimbursement for the smartphone application.

 

The development of DryEyeRhythm is crucial step forward toward the management of DED and improving vision and quality of life among the population.


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Spread & Containment

A rapid, highly sensitive method to measure SARS-CoV-2 in wastewater

Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in…

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Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in multiple areas across the world to track the prevalence of the virus, serving as a proxy for determining the status of COVID-19. Of particular importance is that WBE can be used to estimate the prevalence of COVID-19, including asymptomatic cases. However, one of the major drawbacks of WBE for SARS-CoV-2 has been that the traditional method was not very sensitive, and low viral loads could not be reliably detected.

Credit: Hiroki Ando, et al. Science of the Total Environment. August 8, 2022

Wastewater-based epidemiology (WBE) has been shown to be an excellent means of understanding the spread of SARS-CoV-2 in communities. It is now used in multiple areas across the world to track the prevalence of the virus, serving as a proxy for determining the status of COVID-19. Of particular importance is that WBE can be used to estimate the prevalence of COVID-19, including asymptomatic cases. However, one of the major drawbacks of WBE for SARS-CoV-2 has been that the traditional method was not very sensitive, and low viral loads could not be reliably detected.

A team of scientists from Hokkaido University and Shionogi & Co, Ltd., have developed a simple, rapid, highly sensitive method for the detection of SARS-CoV-2 in wastewater. The method, EPISENS-S, which does not require specialised equipment, was described in the journal Science of the Total Environment.

During the COVID-19 pandemic, Japan has had the lowest number of cases per capita. Thus, the viral loads in sewage have also been lower, and much more difficult to evaluate using established WBE methods—due to their low sensitivity. Prior work by the research team showed that the SARS-CoV-2 virus was associated with solids in sewage, so they focused on developing a method to analyse the solid phase of wastewater.

The method they developed, EPISENS-S, involves centrifuging collected wastewater samples to separate all the solids in the samples. The solids were then treated with a commercially available kit to extract all the RNA; the RNA was then reverse transcribed and amplified to obtain a substantial amount of DNA copies. A separate set of samples was subjected to treatment with polyethylene glycol followed by RNA extraction and reverse transcription to synthesize DNA: the method that is currently widely implemented in Japan. The DNA obtained from each of these methods was subjected to quantitative PCR (qPCR).

The team found that the EPISENS-S method is approximately 100 times more sensitive than the polyethylene glycol method. They used EPISENS-S to conduct a long-term analysis of wastewater from two sewage treatment plants in Sapporo city, and found that there was a high correlation between changes in RNA concentrations in the collected samples and changes in the number of reported cases in the city. EPISENS-S can also detect and quantify the Pepper mild mottle virus (PMMoV), which is associated with fecal matter and is used as an internal control.

EPISENS-S provides a way to track COVID-19 cases that are asymptomatic, as well as those that have not been clinically confirmed. In addition, it has great potential to continue tracking the prevalence of SARS-CoV-2 as vaccination rates increase. Finally, EPISENS-S could also be adapted to track other viral diseases with low infection numbers and viral loads.


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