Wednesday, 5 October 2016

Strategy Report: October 2016

The Cat from Norway, sat in a Doorway: Norway as an Oil Proxy

I had bought and sold oil (aka USO) a long time ago, but due to a variety of reasons including contango, the returns on USO do not mirror oil price movements that well. I managed to exit with a few hundred dollars profit which was too little return for taking on a huge amount of risk. Furthermore, commodities don't declare dividends. 

So one of my investing ideas was to use Australia as a proxy for commodities in general (BHP/Rio etc), though I had no idea whether there was any market that could be a good proxy for oil (Saudi Arabia?).

Attended a talk organised by FSM where the speaker mentioned going long on the Norwegian Krone to express a bullish view on oil as the Krone is an "oil currency." That got me thinking whether some exposure to a Norwegian ETF and thus the underly currency would be useful if I have a long-term bullish view in oil and unsure how to express it (I have a tiny bit of Shell B but the price now is pretty high, also lots of non-systemic risk as apart from Banks, Oil companies are in the news about being fined...)

Buying a US-listed ETF seems to be the simplest way to go about doing this. If I bought direct from Norway, the withholding tax on dividends is about the same and who knows what other taxes... One such ETF would be ENOR from iShares or NORW from GlobalX.

The yield before tax is 4%+ and after withholding tax it drops to about 3%. Looks decent enough to try some buy and hold in order to express a long-term bullish view on oil. Of course, still have to think about the entry point.

Update: NORW is commission-free on IBKR  Of course, if the spread is too large that is also a form of 'hidden charge' but the spread appears comparable to ENOR.

Sembcorp: Averaged down at $2.58

Continuing with the Oil theme, I also averaged down Sembcorp at the end of September at $2.58. I think I have too much Sembcorp but thats the result of Sembcorp's price weakness and my habit of averaging down...

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