08/26/2011

The Google map from www.econmatters.com shows how serious the world wide food crisis has become.

Legends:

Fist = Overthrown Governments
Flames = Actual food / inflation riots
Police = Protests / other riots
$ = Price increase announcements / Price Controls / Stock market issues
! = Strike in inflation / food related industries
Phone = Internet/ Twitter /shutdown

View Inflation Riots and Protests 2011 in a larger map

 

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06/21/2011

Recent market volatilities reminded investors that risk is heightened. For a long term retirement investor, diversification among assets is the first step. On the other hand, some long short strategies in alternative asset classes such as commodities and currencies can be used to further tame market fluctuation.

In the recent financial crisis investors took huge hits. During the financial crisis, some smart investors invested in alternative area such as Exchange traded funds (ETF's) that tap into managed-futures strategies popular with hedge funds and commodity-trading advisors. For these investors, they were rewarded as these managed futures based ETFs performed well during that period.

The managed futures strategy is nothing new; hedge funds and other large, sophisticated investors have been using quantitative methodologies to direct futures-based strategies for years.

Let's take a look at some of commodity and currency long short strategy based ETFs:  

For more information on ETFs in various asset classes, please refer to MyPlanIQ ETFs in Asset Classes page.

Clearly the best performer is LSC in the table with the return of 11.43% in a year followed by the ALT with a return of 2.24%. Although the LSC is down from the past week when the returns are 14.43% this is in line with the worldwide corrections in stoks. The expense ratio of LSC is 0.75% which is also the least as compare to the other ETF's. Please find below the May 2011 long/short positioning of the Index sectors as well as the long/short positioning of the prior month.

LSC is based on a well known S&P Commodity Trends Indicator - Total Return index. The Index is designed to apply a long/short strategy to six commodity sectors comprised of sixteen traditional, physical commodity futures contracts. The Index is a total return index designed to reflect the performance of a fully collateralized investment in the futures contracts. Readers can compare LSC with MyPlanIQ's P S and P Commodity Trend Indicators Strategy which models the same S&P CTI index using Powershares DB commodity ETFs such as (DBP), (DBB), (DBA) and (DBO).

ALT return on the securities is linked to the performance of portfolio foreign currency forward contract and exchange traded future contracts that may involve commodities, currencies, interest rate and certain eligible stocks or bonds indices while seeking to reduce the risks and volatility inherent in those investment by taking long and short positions in historically co-related assets.

WDTI employs a quantitative, rules-based strategy designed to provide returns that correspond to the performance of the Diversified Trends Indicator (DTI). The index is a composite of 24 highly liquid futures grouped into 14 sectors, with an even split between financials (i.e., currencies and interest rates) and physical commodities. The positions of each sector are either long or short (except for energy) based on price behaviour relative to a moving average (if energy is not positioned long, the sector weight is allocated to other sectors). Sector weights are determined by global production for commodities, and by GDP tiers for financials. Readers again can compare this fund with MyPlanIQ's P S and P Diversified Trend Indicators that, in addition to Powershares commodity ETFs, uses CurrencyShares ETFs such as (FXE), (FXY), (FXA), (FXF), (FXB), (FXC) to model the S&P DTI index.

The actively managed long short ETFs mentioned above can indeed provide some diversification benefits for a retirement investing portfolio. As these ETFs are relatively new, investors should monitor these ETFs and do their due diligence.

Disclaimer: 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. 

Symbols: LSC, ALT, WDTI, DBO, DBP, DBA, DBB, FXE, FXY, FXA, Portfolio Strategies, Managed Future ETFs

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05/12/2011

In his latest letter, GMO's Jeremy Grantham urged investors to lighten up risk assets or reduce risk exposure in their portfolios. As markets have gone up without a 10% coorection since last September, it makes sense to review your portfolios.

The following are the riskiest assets that one should pay close attention to:

• Commodities (DBC) (GSG): as inflation and dollar debasing hedge, commodities have risen too fast and too high. This is especially true for silver (SLV) and somewhat in gold (GLD) and agriculture commodities (DBA). Strong fundamentals supporting commodity exposure is still intact. But at the moment, commodities are due to a correction (in fact, right now, a correction has been ongoing). 
• Emerging market stocks (EEM): dollar weakness and/or commodity prices are translated into pressure on emerging market economies. However, this is somewhat muted by the emerging market currency appreciation. Nevertheless, as emerging market stocks are somewhat leading indicators, one needs to be vigilant on its exposure. 
• U.S. and developed country stocks in general (SPY) (EFA): these are overvalued based on many long term stock market valuation metrics such as Shiller's CAPE10. 
• High yield bonds (HYG) (JNK): in the credit market, high yield or junk bonds have held up remarkably well. However, if economy recovery in the U.S. starts to fumble, expect low quality bonds to take a beating. 

In this environment, for long term strategic asset allocation portfolios in a 401K, IRA or a taxable retirement investing account, one should re-balance a portfolio that has over-weighted risk asset allocations. 

For a tactical asset allocation portfolios such as this six core portfolio, just keep a watchful eye and be prepared for risk asset reduction if it is called for. 

Check out Major Asset Trend Table Widget for more information. 

Symbols: DBC, SLV, GLD, DBA, EEM, VNQ, HYG, JNK

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04/22/2011

by Nanette Byrnes at Portfolioist.com

Political turmoil in the Middle East and Africa, a natural and nuclear disaster in Japan, rekindling European debt crises: It’s easy to understand why investors may shy away from investing in foreign stocks these days.

They may be making a mistake.

Reluctant Global Investors

“There’s so much fear out there,” says Darleen Gilmore, founder of Austin Wealth Specialists, an investment advisor who likes clients to put a certain percent of their holdings into global markets. “I have to ease them into it.”

In a recent survey of global investors, Franklin Templeton found that U.S. investors buy the idea that good opportunities exist outside of the 50 states, but many don’t act on that belief. According to the firm’s writeup of the survey:

“When considering equities in particular, nearly three-quarters (73 percent) of U.S. respondents stated that the best opportunities will lie not only in the U.S. over the next 10 years. However, the survey showed that just 40 percent of Americans currently have investments outside the U.S.”

Why the disconnect?

Gilmore says that people who lost money in the markets in 2008 and 2009 or who have suffered from a period of unemployment, are hesitant to jump into investing outside of home terrain.

Building an International Portfolio Heavy on Emerging Markets and Agriculture To Beat Inflation

She works mainly with customers preparing for retirement or who have already retired, and though she doesn’t put a huge chunk of their money into emerging markets, she does like to see a slice of 10% or so in global funds. With faster economic growth coming outside the U.S., Gilmore sees this as one way to help clients beat inflation.

When building international exposure into her clients’ portfolios, Gilmore focuses on a few trends:

• Her focus is on emerging markets rather than developed markets outside the U.S.. First, US indexes like the S& P500 have companies with strong exposure to developed markets outside the U.S. already (Coca Cola (KO), McDonalds (MCD), etc.). Second, Europe is struggling with a growing list of sovereign debt crises, rising unemployment, and aging populations. Third, emerging markets are where the fast growth is likely to come from.
• She also puts a focus on agriculture, including meat. This is Gilmore’s bet on the rising middle class of India, China and other emerging nations, and their growing taste for a broader diet with far more protein.
• For balance, Gilmore includes some shorter-term fixed income investments. Those should help balance out performance, so her customers don’t get too nervous if things swing down for a while in the rest of the portfolio. “The reason people won’t hold an investment for some time is the volatility,” she explains. “If I can get them focused on the whole portfolio, then I can get them to be a little more patient.”

Gilmore is not a market timer, but she does advocate using a tactical asset allocation in which an investor makes some shifts from time to time based on the broader environment. She is not a fan of buy and hold, which she says most clients can’t really embrace. They become anxious to do something from time to time, and she sees opportunities to do so. “Investments change, portfolio managers change, new opportunities come about,” she notes. One example: Exchange Traded Funds (ETFs) and UCIs (which stands for “Undertakings for Collective Investment”), which she uses for most clients today.  Their transparency, lower cost than mutual funds and the ability to trade and price them at any time, leave clients feeling more secure, she says.

Though it can take time for a client to become comfortable with global investing, Gilmore argues that without it, investors don’t stand a great chance of keeping up with inflation. For any investor near retirement, doing so is critical.

(photo: Tuppus)

Symbols: EEM, VWO, DBA, FXI, MOO

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04/21/2011

The evolving global economy, geopolitical risk, growing inflation and sovereign debt are major challenges for any emerging nation as this leads to higher commodities prices. Silver, precious metals and gold have been the best performing asset classes in recent years outperforming equities, REIT and most asset classes over  3, 5 and 10 year periods.

The performance of silver, gold, and precious metals looks set to continue in the coming months due to bullish fundamentals.  The recent consideration of downgrade of credit rating of USA just adds fuel to the fire.

The table below clearly indicates the strength of the commodities with silver, precious metals and gold leading.

Silver and the gold are major commodities used to hedge against microeconomics, and to reduce the risk of inflation as it provides added potential for significant capital gain. According to Ibbotson Associates, precious metals are the most positively correlated asset class to inflation. From a strategic point of view, Ibbotson determined that portfolios could reduce risks and improve returns with a 7-15% allocation to precious metals.

Many investor uses gold for wealth preservation and silver for a return. Over the next ten year or more, metal prices are predicted to remain high.  This is mostly due to increasing demand from countries undergoing intensive levels of development and infrastructure building. In particular China and India will drive the cost of metals across the board. Analyst predicts that 2011 and 2012 will be year of silver we will see higher trend in silver in these years. As long as the systematic devaluation of dollar by the Fed (i.e. interest rates near zero) broad base commodities trends will continue positive. Once interest rates start to increase the dollar will gradually pick up, pushing gold and silver down.

Today, commodities are a long term investment proposition as inflation is a present and continuing reality that will drive commodity prices and stocks higher. Over the past decade the gold and silver were used as a major hedging commodity in microeconomics. Today the continuing high demand over limited supplies and the change of basket of international bank reserves will cause the prices of gold to continue to trend upward.

Symbols: DBC, DBA, DBP, GLD, SLV

Exchange Tickers: (NYSE: DBC), (NYSE: DBA), (NYSE: DBE), (NYSE: DBB), (NYSE: DBP), (NYSE: GLD), (NYSE: SLV), (NYSE: USO), (NYSE: UNG)

Disclaimer:

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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03/21/2011

03/20/2011

03/16/2011

03/14/2011

03/13/2011

03/07/2011

03/07/2011

02/28/2011

02/26/2011

02/22/2011

02/20/2011

02/14/2011

02/14/2011

01/15/2011

01/14/2011