Should Your Portfolio Own Commodities?

Should Your Portfolio Own Commodities?

Should your investment portfolio have exposure to commodities?

The problem with commodities (NYSEARCA:DBC) is that most of us don’t have storage space in the garage for a herd of cattle or pork bellies. And even if we did, it still wouldn’t give us diversified exposure to other important commodity sectors like agriculture, energy, and metals (NYSEARCA:GLTR).

It’s true commodities have significantly lagged the performance of U.S. stocks (NYSEARCA:SCHB) over the past several years. But that doesn’t diminish their importance.

In the context of a diversified portfolio with market exposure to domestic and developed market stocks (NYSEARCA:EFA), bonds (NYSEARCA:AGG), global treasury inflation protected securities (NYSEARCA:GTIP), and global real estate (NYSEARCA:RWO) – commodities have a definite place. Beyond offering low correlation to other types of assets, commodities can serve as an inflationary hedge.

GSG vs. VTI

The chart above shows something we haven’t seen from commodities in quite a while; outperformance. You’ll note how the iShares S&P GSCI Commodity Index Fund (NYSEARCA:GSG) has beaten the total U.S. stock market over the past three months by almost 7%. Beef prices are at 30-year highs and coffee prices (NYSEARCA:JO) have soared because of droughts in South America.

GSG maintains exposure to 24 different commodities via futures contracts. One of GSG’s drawbacks is its  heavy exposure to energy commodities like crude oil and gas, which account for around 68% of the fund’s commodities exposure. In my video titled “2 Easy Ways to Get Exposure to Commodities” I examine two other commodity focused ETFs that offer investors a good opportunity to own commodities but in a more diversified way.

GSG Holdings

When searching for core portfolio exposure to commodities, there’s no doubt that ETFs and similar product structures offer convenient and affordable access. But it’s important to understand that certain commodity ETFs are much less diversified than they appear. And if that’s not what you want in an ETF when trying to obtain broad exposure to commodities.

The ETF Profit Strategy Newsletter uses technical and fundamental analysis along with market history and common sense to keep investors on the right side of the market. We cover gold along with other major asset classes like stocks, bonds, and currencies. In 2013, 70% of our weekly ETF picks were winners.

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2 comments on “Should Your Portfolio Own Commodities?
  1. theyenguy says:

    Commodities, DBC, manifested an evening star chart pattern, that is a reversal pattern.

    Risk-on investing has turned to risk-off investing; global asset prices are falling as the money bubble has finally burst, as both Equity Investments and Credit Investments as well as Nation Investment, and Small Cap Nation Investment, and Global Financial Institutions, are trading lower from their April 9, 2014, highs, this coming on the failure of credit in China, in Russia, and in the US.

    The failure of credit coming at the end of the week of April 25, 2014, constitutes the most significant economic event since President Nixon took the US off the gold standard in 1971, it pivots the world out of the age of credit and into the age of debt servitude, and is evidenced by the parabolic turn lower in Chinese Financials, CHIX, China Investments, YAO, as well as Regional Banks, KRE, the US small Caps, IWC, IWM, as well as Credit Providers Visa, V, and Mastercard, MC, the nation of Russia, RSX, ERUS, and Leveraged Buyouts, PSP, and manifests as the death of Major World Currencies, DBV, such as the Australian Dollar, FXA, and Emerging Market Currencies, CEW, such as the Chinese Yuan, CYB.

    Now, the investor is going extinct; especially the fixed income investor; that is those invested in a Pursuit Of Yield like those invested in Electricity Utility Stocks, PUI, XLU, such as New Era Energy, NEE, Real Estate REITS, RWR, such as General Growth Properties, GGP, in Energy Partnerships, AMJ, such as Cheniere Energy, LNG, and Oiltanking Partners, OILT.

    The failure of credit is an extinction event, that pivots the world economy out of liberalism, that is the paradigm and age of credit and investment choice, and into authoritarianism, that is the paradigm and age of diktat and debt servitude, which features the debt serf, is the centerpiece of economic activity.

    Under the power of the Rider on the White Horse, as is seen in Revelation 6:1-2, the bond vigilantes are effecting a global economic coup d’etat, transferring sovereignty from democratic nation states to sovereign regional leaders and sovereign regional bodies, such as the ECB, by calling the Interest Rate on the US Ten Year Note, ^TNX, higher from 2.48% on October 23, 2013, and are powering up the singular dynamo of regionalism to establish regional security, stability, and sustainability, to deal with the destructionism of unwinding currency carry trades and debt trades.

    Investors greed has turned to fear; fear that debtors will not repay lenders, with the result that the Pursuit Of Yield Investments such as Leveraged Buyouts, PSP, Emerging Market Financials, EMFN, Shipping, SEA, Chinese Real Estate, TAO, Water Resources, FIW, Energy Partnerships, AMJ, and Global Utilities, DBU, which underwrote the age of credit, are now trading lower. It’s “Hasta la vista baby” to Shippers, specifically the Greek shippers, NM, SB, DSX, NNA, TNP and GASS.

    A new currency and governmental regime is coming out of the failure of credit and the death of currencies; it is the regime of regional diktat money and regional economic governance, something that is implicit in Daniel’s Statue of Empires, seen in bible prophecy of Daniel 2:25-45, where the two iron legs of global hegemonic power, these being the UK and the US, flow into the ten toes of iron diktat and clay totalitarian collectivism; these toes are the same reality seen in the governance of the ten horns, that is the ten world regions, and the totalitarian collectivism experience of mankind’s seven institutions, foretold in the Beast prophecy of Revelation 13:1-4

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