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ETF Securities has filed papers with the Securities and Exchange Commission for a series of commodity ETFs that may give investors long-term tax treatment that’s superior to competing funds.

The filing, dated May 27, covers 18 new ETFs, and would mark a significant expansion of ETF Securities’ U.S. lineup. the company currently has just four funds on the market in the U.S., with about $1.5 billion in assets under management. London-based ETF Securities is a dominant player in the commodities ETF space in Europe, and has gathered more than $18 billion in assets.

The new U.S. filing covers eight traditional long commodity funds, five short commodity funds and five leveraged funds. each fund will track an index that aims to capture the performance of a fully collateralized rolling position in front-month commodity contracts. the leveraged funds aim to capture twice the daily performance of each index, while the short funds aim to capture the inverse of the index’s daily performance.

The funds are:

The Potential Tax Advantage

The potential tax advantage is that these funds won’t invest in actual futures contracts, the way ETFs like the United States Oil Fund (NYSEArca: USO) or the iShares GSCI ETF (NYSEArca: GSG) do. instead, they will enter into a special kind of swap agreement, which may boost the long-term tax efficiency of the funds.

ETFs are a pass-through mechanism: Investors holding ETFs are taxed as if they held the securities owned by the ETF itself. Futures contracts are treated differently from equities from a tax perspective, and those differences pass straight through to the ETF investor. As a result, no matter how long you hold a fund like USO, any gains will be taxed as 60 percent long-term and 40 percent short-term gains, just as a futures contract would be. that creates a maximum capital gains tax rate of 23 percent. also, futures (and futures-holding ETFs) are “marked-to-market” at the end of each year, meaning you can’t defer gains, and will likely owe taxes on the fund each and every year. this has made owning futures-based commodity ETFs in a taxable account somewhat challenging.

The new funds will own swap contracts linked to futures rather than purchasing the futures themselves. the advantage is that the swaps in this case will be structured as “prepaid forward contracts.” That’s a magic word in commodities, as it’s the same word used to describe commodity exchange-traded notes.

ETF Securities Files For Tax-Efficient Commodity ETFs

A lot of investors are worried about what shares of Citigroup, Inc. (NYSE:C) will do this week. It’s been a troubling few weeks for the stock, as panic gripped the market about the meltdown of the Eurozone. some of that fear has abated in recent days, but there is still a lot of underlying concern. People remember the last fiscal crisis all too well, because many are still experiencing the effects today!

But let’s face facts. Fortunes are made when stocks are beaten up and selling for a deep discount.

Human nature tells all of us to run when we see all the other people heading to the exits. no one wants to be left behind when a mass exodus occurs in a stock. but investors have to maintain level heads. Is the stock battered because of fundamentals or is it merely sentiment that’s causing the crash? If you’re pretty sure that the market is treating a stock wrong, then you have to have the guts to get in there and buy when everyone else is retreating. You need to show courage when a lesser investor is gripped by fear and is afraid of losses.

The real gains come from buying valuable stocks at all time lows and riding up to new highs. Just study the history of Warren Buffett, who is almost universally called the greatest investor that ever lived. he built his entire career on buying unpopular ‘value stocks‘ and holding them for as long as he could. he once described his ideal holding period as ‘forever.’ For those investors who think like Buffett, now is a great time to buy shares of a Big Cap value stock that could be held onto for years.

Citigroup certainly has many desirable qualities for those thinking of holding for a period of time of several years. the company has suffered a lot of setbacks in recent years and the share price reflects that sad reality. but the news is far from all bad at the company. In fact, in recent months, there have been many developments that should excite just about anyone thinking of purchasing Citigroup stock.

The Eurozone crisis is the main reason C stock dropped in recent weeks. Financials first came under fire when the Goldman Sachs scandal erupted, then got progressively worse as Greece threatened to bring down the European Union. although those are very worrisome concerns for potential Citigroup investors, a realistic review of C’s current operations would make most people comfortable that at under $4 a share a certain safety net is built into the stock.

C has issues to worry about, certainly, but the company also has a whopping $769.33 billion of cash on hand. That’s the type of checkbook balance that gives executive management a lot of flexibility.

With a book value of $5.28 a share, the risk in buying C shares at $3.74 each is very low. I understand using book value is a bit simplistic, but in this case it gives investors some idea of just how much cash is backing each share. When you consider that C has a whopping cash per share of $26.55, you start to see why buying shares in Citigroup at the current valuation is nearing ‘no-brainer‘ territory.

The stock in most companies is worth much more per share than the company is holding in cash. That signals that Citigroup could do a lot to improve its earnings power and its stock price in coming years. If the capital is allocated correctly, the value of Citigroup as a global financial brand could end up much, much higher than the current cash on hand.

But in order to find that out, it will take patience. Investors will need to buy Citigroup stock and tuck it away until enough quarters have passed that the business operations have improved dramatically and the stock is once again selling at a high multiple.

What I expect to see this week is a return to Citigroup stock of fundamental shoppers who recognize the discount. Once the bargain hunters show up, expect the momentum players to head back in and it could be a quick run back up.

If the economic news is good, then C stock could certainly benefit.

Tags: C, Citigroup, NYSE:C, Stocks

This entry was posted on Sunday, may 23rd, 2010 at 12:33 pm and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed.

Citigroup, Inc (NYSE:C) – What To Expect This Week

The Dow Jones Industrial Average (DJIA) fell as much as 280 points this morning as the market roller coaster continued on Friday. Following the 1,000 point plunge in the Dow Jones on Thursday, the benchmark index rose as much as 59 points shortly after the market open, but shortly after continued its wild ride lower. As of 11:22am EST, the Dow had recovered nearly its entire decline, as it traded lower by just 23 points at 10,497.

Market volatility has picked up dramatically once again, with the CBOE Volatility Index (VIX) surging 28.5% to an intra-day high of 42.15 above Thursdays high in the VIX of 40.71. fear and uncertainty have taken hold on Wall Street, with investors and traders shooting first and asking questions later amid confusion over the cause of yesterdays historic sell-off. meanwhile, folks on Main Street have undoubtedly paid more attention to the markets, with many watching the intra-day movements of the Dow Jones to see where the roller coaster may be headed next.

There is a considerable amount of debate over what triggered the plunge in the Dow and other major indices, but regardless of what happened, for investors what matters is where things are headed moving forward. along these lines, two well-known investors soon after shared their thoughts on the markets. Jim Rogers who is perhaps best known for founding the Quantum Fund with George Soros in the early 1970s stated in a Bloomberg Television interview that financial markets were overdue for a sell-off and had a normal correction. The current Chairman of Rogers Holdings went on to say that being down 3 or 4 percent is a big, big number but thats hardly panic, not yet. As for investors, Rogers suggested they should be very careful and cut back on their positions amid the enhanced uncertainty.

Rogers also reiterated his bullish view on commodities, which he correctly turned positive on in the late 1990s. The legendary investor stated that he continues to favor hard assets, such as gold, silver, copper, and oil because of what he expects to be further currency turmoil in 2010 and 2011.

In a separate interview, Marc Faber author of the widely-read Gloom, Boom & Doom report characterized the market as overbought, ahead of itself and due for a correction. Furthermore, recent weakness in the major indices, including the Dow Jones, indicate that maybe weve made a major high in the latter part of April this year and that we will, from here on, have a more meaningful decline. Faber also suggested that investors pare positions on any short-term bounce in equities given the potential for a more significant move lower.

Dow Jones Roller Coaster Continues

The only slight disagreement I have with Rogers has to do with timing. I believe gold will spike to $2,000 in the next 2-5 years, and here’s why. You have to think about what the likely drivers will be to the price of gold. One driver is the value of the dollar. a move to $2,000 in gold implies an orderly decline in the dollar, which is unlikely based on the degree of monetary stimulus we’re pumping into the system. to add, the number of dollars outside the U.S. is staggering, and there is a clear move to diversify (read:dump dollars) foreign currency reserves. China has been dumping dollars for gold, and India just made noise by buying 200 metric tons of gold. Remember, Central Banks are conservative institutions, meaning they are not selling their gold anytime soon.

Gold and Commodities Bubble?

Roubini, the new York University professor who warned in 2006 about the coming financial crisis, said on Oct. 27 that investors are borrowing dollars to buy assets and creating “huge” asset bubbles. Rogers said that he’s not buying stocks now, though he may buy more gold.

“What bubble?” Rogers said, when asked if he agreed with Roubini’s view. “It’s clear Mr. Roubini hasn’t done his homework, yet again.”

Roubini told a conference in South Africa last month that investors were doing “the mother of all carry trades” by buying assets with borrowed dollars. he said emerging-market equities are showing a bubble, that gains in some developing- nation currencies are becoming “excessive” and that the rally in oil is “not justified by the fundamentals.”

The burden of proof is on Roubini to demonstrate that the dollar carry trade is going to unwind in the near future. as long as the dollar exchange rate is depressed and interest rates in America remain low, there is absolutely no incentive for investors to unwind their trades. I know the consensus is for the Fed to raise rates sometime next year, but with the underlying weakness in our economy, I don’t think that’s a viable option.

Rogers Bearish on U.S. Treasuries

In contrast to Roubini, Rogers said the only bubble he sees in the Western world now is in U.S. bonds.

“I cannot conceive of lending money to the U.S. for 30 years,” he said. “Other than that, I don’t see any bubbles going on, unless he knows something the rest of us don’t know.”

The standard line is that investors will flee to the perceived safety of U.S. government bonds if we were to be hit by another shock to our system. I don’t see that historic pattern holding this time around. You are starting to see stocks and bonds getting sold off simultaneously while gold rises. I believe these are three secular trends to look for in the future.

Why would you buy government bonds with virtually no yield when you can buy gold? In a no yield environment, gold is the smart play here, not U.S. bonds. keep in mind that persistent debt issuance results in an exponential growth in servicing costs. In other words, there will come a time when a critical mass of the population realizes our debt is untenable. when that happens look for Treasuries to tank while gold rises parabolically.

Expected Returns: Jim Rogers: Roubini is Wrong About Gold Bubble