Jim H. Lowell is chief investment strategist at Adviser Investments in Newton, Mass., and editor of the Forbes ETF Advisor and Fidelity Investor newsletters.
Fall is around the corner. In a typical market cycle, given the spectacular rally that we've experienced since mid-March (and the potential for selling that such rallies engender), harvesting some of those gains would normally make sense. I don't think this is a typical market environment, let alone a typical market cycle. Instead, I think we're in a secular trough of the next global bull market cycle.
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True, we live in interesting times where earnings and economic data relative to prior quarters, as well as year-over-year comparisons, are going to get easier and easier to swallow. That doesn't mean they'll be absolutely good. In terms of prices, the next quarter could be a reverse picnic compared to the prior two. But, it does mean that if the improving macro trends hold up, the markets are primed for a longer-term upswing that many don't dare to hazard at this particular juncture.
Me? I'm focused on what fuels growth. For example, commodities fuel growth. After a five-month run up in most everything, commodities and the stocks in the companies that mine, transport, process and sell them, are still an attractive area to consider thanks to the fact that China (and I'm waging the U.S. economy ere long) is back on a growth track. Despite the fact that U.S. investments in shovel-ready infrastructure (like transportation and manufacturing facilities) has been negligible, China's activity as the geopolitical recovery overlay puts a premium price on commodities today and down the road. Even without high demand, supply for hard commodities like steel, and soft commodities like sugar, are arguably stretched to the breaking point.
I'm particularly interested in investing in commodities that China consumes but doesn't produce enough of: a smart play in its own right. But, with the projected growth of emerging-market consumers as a whole, and the re-emergent growth of U.S. and possibly European consumers in tow, all the world's a commodity stage.
Given my generally bullish long-term view, I'd argue that rather than taking gains, diversifying is the best way to sow the seeds for next year's harvest while mitigating some of the near-term equity risks that attend this year's marketplace. Commodity stocks aren't for the faint of heart, but they're not the untouchables that many investors think them to be.
Here are some commodity ETFs that still look attractive enough to buy:
Claymore/Beacon Global Timber (nasdaq:
CUT). Seeks investment results that correspond to the price and yield performance of the Beacon Global Timber Index, which is made up of companies that own or lease forested land and harvest timber for the production of wood-based products. The fund began trading in November 2007 and has a market value of almost US$78 million. The top country representations are the U.S. (27.4%), Japan (19.2%), Sweden (8.9%), Brazil (8.8%) and Finland (8.7%). The top sectors are materials (86.1%), financials (8.7%) and consumer discretionary (5.3%).
The top 10 holdings are
Votorantim Celulose (nyse:
VCP),
UPM-Kymmene (otc:
UPMKY.PK),
MeadWestvaco (nyse:
MWV),
Aracruz Celulose (nyse:
ARA), Smurfit Kappa Group,
Svenska Cellulosa (otc:
SVCBY.PK),
Stora Enso (otc:
SEOAY.PK), Holmen, Mondi and
Weyerhaeuser (nyse:
WY).
Claymore S&P Global Water (nasdaq:
CGW). Seeks investment results that correspond to the price and yield performance of the S&P Global Water Index, which is made up of companies that deal with water utilities, infrastructure, equipment, instruments, and materials. It began trading in May 2007 and has a market value of over US$178 million. The top country representations are the U.S. (38.8%), Britain (19.2%), France (12.4%), Japan (7.9%) and Switzerland (5.4%). The top three sectors are utilities (42.1%), industrials (41.2%) and materials (9.4%).
The top 10 holdings are
Veolia Environment (nyse:
VE), Kurita Water Industries, Geberit,
United Utilities Group (otc:
UUGWF.PK),
Nalco Holding (nyse:
NLC),
ITT Industries (nyse:
ITT), Severn Trent,
Danaher (nyse:
DHR), WorleyParsons and
Pentair (nyse:
PNR).
Market Vectors Coal (nasdaq:
KOL). Seeks investment results that correspond to the price and yield performance of the Stowe Coal Index which is made up of companies that acquire more than half of their revenue from the coal industry. It began trading in January 2008 and has a market value of over US$298 million. The top country representations in the index are the U.S. (45.7%), China (23.7%), Indonesia (16.3%), Australia (5.1%), and Hong Kong (4%).
The top 10 holdings are China Shenhua Energy,
Alpha Natural Resources, (nyse:
ANR),
China Coal Energy (otc:
CCOZF.PK),
Peabody Energy (nyse:
BTU),
Joy Global (nasdaq:
JOYG),
Consol Energy (nyse:
CNX),
Walter Industries (nyse:
WLT), Bumi Resources, Adaro Energy and Exxaro Resources.
PowerShares DB Agriculture (AMEX:
DBA). Seeks investment results that correspond to the price and yield performance of the Deutsche Bank Liquid Commodity—Optimum Yield Agriculture Excess Return Index measuring the performance of the agriculture sector by tracking the price movements of corn, wheat, soy beans and sugar. It began trading in January 2007 and has a market value of over US$2.3 billion.
PowerShares Water Resources (nasdaq:
PHO). Seeks investment results that correspond to the price and yield performance of the Palisades Water Index, which is made up of companies involved in the production of potable water, the treatment of water and water consumption in general. It began trading in December 2005 and has a market value of almost US$1.4 billion. The top three sectors are industrials (78.6%), utilities (11.4%) and materials (6.1%).
The top 10 holdings are
Valmont Industries (nyse:
VMI),
Veolia Environment (nyse:
VE),
Tetra Tech (nasdaq:
TTEK),
Flowserve (nyse:
FLS),
Ameron (nyse:
AMN),
AECOM Technology (nyse:
ACM),
URS (nyse:
URS),
Danaher (nyse:
DHR),
Watts Water Technologies (nyse:
WTS) and
Itron (nasdaq:
ITRI).
United States 12 Month Oil (amex:
USL). Seeks investment results designed to track the price of light sweet crude oil, measured by 12 futures contracts consisting of the near month contract to expire and the contracts for the next 11 months. It began trading in December 2007 and has a market value of US$177 million.
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