The Commodity Investor Q&A
With Matt Badiali
September 23, 2009
Q: I get it... I need to own commodities in an inflation. I don't have time to trade and keep up with the market. Are there any "set it and forget it" ways to own a basket of commodities? – R.R.
A: I sympathize with your problem. You can track and trade 40 or 50 different commodities. It's incredibly difficult to keep a close eye on them all.
Fortunately, you don't need to. You can put your dollars into commodities as easy as buying a stock with exchange-traded commodity funds. There are about 10 broad-spectrum commodity funds, which track various commodity indexes.
When you're choosing which one to buy, the most important consideration is the mix of investments. Avoid funds that offer you four or five commodities. (Several will just put you in gold, silver, gasoline, oil, natural gas, and corn.) If you're going to buy a "basket" of commodities, then make sure you're getting a big basket. The good funds track 18 to 35 different commodities.
Another point to consider is fees. Goldman Sachs offers GSC, which has a decent mix. However, its fees are 1.25%, twice as high as its peers with exactly the same performance. I'm a bargain shopper, so if I can buy the same performance for 0.75% or less, I'm going to.
I found a couple diverse funds that charge only modest fees...
ELEMENTS Rogers International Commodity Fund (RJI) tracks the Rogers (as in world-famous commodity bull Jim Rogers) International Commodity Index. The index trades 35 different commodity futures. It includes commodities like Azuki beans, greasy wool, and lean hogs. Today, the index's general composition is crude oil (35%), agriculture (24%), and metals (21%).
The iPath Dow Jones-AIG Commodity Index Fund (DJP) tracks 19 components. Its general composition is metals (36%), energy (32%), and agriculture (26%).
Both funds charge 0.75% in fees and both are up double digits this year. (RJI outperformed DJP by about 5%.) I'd begin your research with these two funds.
Q: Do you think battery powered cars or natural gas powered cars are the best way to get us off foreign oil? – K.H.
A: For years, politicians have conditioned us to believe we're in grave danger because we import about 50% of our crude oil. It's absurd. We should see oil as simply another trade good, like cars, t-shirts, or coffee. It's something that can be produced cheaper somewhere else and imported economically. It's not a plague, it's economics.
Should we also be copper independent? And semiconductor independent?
But here we are, in a discussion about "getting us off foreign oil." As if those hybrid cars aren't made in Asia. As if the steel in their bodies didn't come from China. As if the lithium in those batteries didn't come from South America. The irony of buying foreign cars to wean us off foreign oil is overwhelming.
Ultimately, the answer is, yes, we could cut our oil imports if we could replace gasoline with some other fuel. But so far, the economics aren't in favor of it.
Hybrids are expensive. (And they have some nasty unanswered questions, like what happens when the supplies of battery materials get low and we swap OPEC for Bolivia?)
The natural gas vehicles have potential, especially when our natural gas resources are growing every day. Some bright bulb will figure out how to make a fortune on a new engine, and off we'll go. I'm right here waiting to buy one... when it's better and cheaper than the car I drive now.
If you insist on paying extra for a tight-fitting feeling of superiority... go buy a Prius. But if you want really to do something about oil consumption right now, inflate your tires. If everyone in America did that, we could cut our consumption by 1.2 billion gallons per year.
A free bit of conservation is a much smarter alternative to absurd and outrageously expensive government programs.
Good investing,
Matt Badiali |
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| • |
Latin American stock fund GML hits new high... up 11% in September alone. |
| • |
Gap, American Eagle, Polo, Nordstrom make fresh highs... "spending stock" rally continues. |
| • |
BP hits new 52-week high... giant oil company 22% off July low. |
| • |
Earnings today... AutoZone, Bed Bath & Beyond, General Mills. |
|
Last |
Change |
52-Wk |
| S&P 500 |
1064.66 |
-0.34% |
-15.17% |
| Oil (USO) |
35.85 |
-3.42% |
-56.61% |
| Gold (GLD) |
98.36 |
-0.31% |
+14.40% |
| Silver (SLV) |
16.54 |
-0.96% |
+32.74% |
| U.S. Dollar |
76.14 |
-0.76% |
+0.27% |
| Euro |
1.48 |
+0.80% |
+0.02% |
| VIX |
24.06 |
+0.59% |
-24.98% |
| HUI |
417.57 |
-1.52% |
+28.98% |
| 10-Year Yield |
3.49% |
0.02 |
-0.26 |
|
|
| Company |
Sym |
Industry |
BP |
BP |
Big Oil |
Eni SpA |
E |
Big Oil |
Morgan Stanley |
MS |
investment bank |
Liberty Ent |
LMDIA |
TV programming |
Pearson |
PSO |
publishing |
Bancolombia |
CIB |
bank |
Fairfax Financial |
FFH |
insurance |
Flowserve |
FLS |
machinery |
CarMax |
KMX |
auto dealer |
Unilever |
UL |
packaged goods |
Infosys |
INFY |
outsourcing |
Gap |
GPS |
clothing stores |
Shire |
SHPGY |
pharma |
Seagate |
STX |
data storage |
Banco de Chile |
BCH |
bank |
SanDisk |
SNDK |
semiconductors |
Virgin Media |
VMED |
TV programming |
Banco Santander |
STD |
bank |
Credit Suisse |
CS |
bank |
Southern Copper |
PCU |
copper mining |
Broadcom |
BRCM |
semiconductors |
Banco Santander |
SAN |
bank |
Tele Norte Leste |
TNE |
telecom |
Credicorp |
BAP |
bank |
Lubrizol |
LZ |
chemicals |
Advanced Micro |
AMD |
semiconductors |
Google |
GOOG |
online search |
Wyeth |
WYE |
Big Pharma |
Carnival |
CUK |
cruises |
HDFC Bank |
HDB |
bank |
AES Corp |
AES |
utilities |
Polo Ralph Lauren |
RL |
clothing stores |
Brasil Foods |
PDA |
meat |
Mylan |
MYL |
pharma |
Alexion Pharma |
ALXN |
pharma |
Telefonica |
TEF |
telecom |
Westpac Banking |
WBK |
bank |
Comp Siderurgica |
SID |
steel production |
Precision Castparts |
PCP |
metal fabrication |
Marriott |
MAR |
hotels |
Micron Technology |
MU |
semiconductors |
KLA-Tencor |
KLAC |
semiconductors |
Hertz |
HTZ |
car rental |
Lender Processing |
LPS |
business services |
Sanofi-Aventis |
SNY |
Big Pharma |
AMBEV |
ABV |
beer |
Korea Electric |
KEP |
utilities |
Cognizant |
CTSH |
outsourcing |
NetApp |
NTAP |
data storage |
Expedia |
EXPE |
online travel |
Ross Stores |
ROST |
clothing stores |
Cintas |
CTAS |
uniforms |
American Eagle |
AEO |
clothing stores |
Goldman Sachs |
GS |
investment bank |
Novo Nordisk |
NVO |
Big Pharma |
TJX Companies |
TJX |
dept stores |
Annaly |
NLY |
virtual bank |
Millicom |
MICC |
telecom |
Nordstrom |
JWN |
clothing stores |
TIM Participacoes |
TSU |
telecom |
Jefferies Group |
JEF |
brokerage |
CGI Group |
GIB |
software |
|
|
| Company |
Sym |
Industry |
No highs of note |
|
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