Commodities Withstood the Recent Market Selloff

03/21/2011 0 comments

Commodity ETFs again showed their divergence with other risk assets last week: during the market selloff last week. The broadbase commodity index like Powershares commodity index (DBC) actually registered a 0.78% gain. Natural gas (UNG) had a big jump, gaining 6.83% while gold (GLD) was steady. Silver had the biggest drop of 2.17%. Fore more detailed performance, please refer to here.

From the following trend score table, one can see the broadbase commodity index (DBC) actually had its trend score increased in last week. 

Assets Class Symbols 03/18
Trend
Score
03/11
Trend
Score
Direction
Silver SLV 40.11% 47.09% v
Energy DBE 16.53% 14.75% ^
Commodity DBC 14.15% 12.94% ^
Precious Metals DBP 14.15% 15.87% v
Agriculture DBA 12.09% 14.21% v
US Oil USO 10.34% 8.1% ^
Gold GLD 8.86% 9.46% v
Base Metals DBB 6.53% 4.5% ^
Natural Gas UNG -5.95% -13.75% ^
The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

Amid the somewhat severe and volatile market correction last week, it is relevant to review several commodity themes again here: 

  • Agriculture commodities (DBA): world food price has risen in the past several years and the demand from emerging middle classes outstripped the supply. See Commodities Trends: Food Prices Rose More Than Normal CPIs for more analysis. 
  • Precious metals (gold, silver) (DBP): governments around the globe pumped money to stimulate the economy, let alone the quantitative easing 1-2 by the U.S. central bank would surely make paper currencies less valuable and thus precious metals (Gold and Silver) become the defacto hard currencies. We also pointed out that Silver plays dual roles (as a proxy to hard currency and a proxy to general industrial activities being a metal of practical use). 
  • Energy (Oil (USO) or natural gas (UNG)) (DBE): Amid the middle east political unrests and recent Libyan's upheaval (Libya has the ninth largest oil reserve in the world), oil production is in danger of sudden disruption. 
  • Broadbase commodities (DBC) (GSG): Along with the mentioned factors, recent natural disaster in Japan, the third largest economy in the world, will only add more government supported stimulus, commodity hoarding will only get worse. 
Though strong fundmentals are supporting commodity investing for now, we should point out that commodities are notorious volatile: geopolitical events and general economic activities (and expectation, such as inflation expection) can change the direction of commodities dramatically. It is thus important to properly allocate in one's portfolios and actively manage a portfolio's asset allocation. Interested readers are referred to several previous articles on the role of commodities in portfolio management: 

Symbols: SLV,DBP,GLD,DBB,DBA,DBC,DBE,USO,UNG,SPY,QQQQ,IWM,MDY,EFA,VEU,EEM,VWO,IYR,ICF,VNQ,GSG,LQD,CSJ,CIU,HYG,JNK,PHB,TLT,IEF,SHY,SHV,BND,AGG,MUB,MBB ,


Exchange Symbols: (NASDAQ: SLV), (NASDAQ: DBP), (NASDAQ: GLD), (NASDAQ: DBB), (NASDAQ: DBA), (NASDAQ: DBC), (NASDAQ: DBE), (NASDAQ: USO), (NASDAQ: UNG), (NASDAQ: SPY), (NASDAQ: QQQQ), (NASDAQ: IWM), (NASDAQ: MDY), (NASDAQ: EFA), (NASDAQ: VEU), (NASDAQ: EEM), (NASDAQ: VWO), (NASDAQ: IYR), (NASDAQ: ICF), (NASDAQ: VNQ), (NASDAQ: GSG), (NASDAQ: LQD), (NASDAQ: CSJ), (NASDAQ: CIU), (NASDAQ: HYG), (NASDAQ: JNK), (NASDAQ: PHB), (NASDAQ: TLT), (NASDAQ: IEF), (NASDAQ: SHY), (NASDAQ: SHV), (NASDAQ: BND), (NASDAQ: AGG), (NASDAQ: MUB), (NASDAQ: MBB)

Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

 



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