Breaking News

Is The Negativity On Commodity-Related ETFs Misplaced?

By Pacific Park Financial Inc. (Gary Gordon)Stock MarketsJan 21, 2014 04:29PM ET
Is The Negativity On Commodity-Related ETFs Misplaced?
By Pacific Park Financial Inc. (Gary Gordon)   |  Jan 21, 2014 04:29PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Investors are punishing commodity-rich countries yet again. As popular developed market funds like iShares MSCI United Kingdom (EWU) prosper, iShares MSCI Canada (EWC) and its heavy energy allocation keep the exchange-traded tracker languishing near 52-week lows. Similarly, iShares MSCI Frontier Markets 100 (FM) continues attracting buyers, whereas copper king Chile via iShares MSCI Chile (ECH) has seen its fortunes evaporate over the course of three years.

Retail investors are not the only group convinced that most commodities will drag on buy-no-hold portfolios. The majority of money managers and institutional advisers are equally negative on everything from gold to industrial metals to wheat. The reasoning may differ — stronger U.S. dollar, weak emerging market demand, global deflation — yet the conclusions are eerily similar.

Perhaps ironically, the herd appears to be ignoring the reality that it is buying stocks near all-time highs while simultaneously dismissing the potential of commodities after years of disappointment. In 2013, the S&P 500 garnered more than 29%; the iShares S&P GSCI Commodity Index (GSG) logged -3.5%. Over the last 3 years, the disparity is even more shocking, as the S&P 500 registered approximately 42.5% at the expense of commodity declines of roughly -10%. And yet, nobody seems to be discussing the possibility that commodities could be offering a better “buy low” risk-reward opportunity.

In truth, I have talked about the adverse effects that global deflation scares might have on a number of commodities. And this might be reason enough to look away from total commodity index funds like iShares S&P GSCI Commodity (GSG). For that matter, GSG has not been able to sustain itself above a long-term 200-day trendline, further muddying the technical picture.

Nevertheless, it seems counter-intuitive for the same analysts to recognize economic improvement in the U.S., Europe and China, and not anticipate a better advance for commodities. Soft commodities as a group have been particularly hard hit, from sugar to corn to soybeans. Still, if growth were to improve in these regions, couldn’t the so-called “agri-related” stuff benefit? If European and Japanese contraction has actually reversed itself, and the emerging markets stabilize, wouldn’t that be a net positive for commodity demand?

Since I have yet to see the technical indicators change for the crushed commodity arena, I have chosen a slightly different path in the quest to “buy lower.” Back in November, I liked the value play being offered by an ETF tracking the Market Vectors Global Agribusiness Index. Specifically, Market Vectors Agribusiness (MOO) had been capturing beaten-down companies like Deere (DE) and Potash Corp (POT) — companies that had been hurting due to weakness in fertilizer production and equipment building. Yet even then, the technical picture was beginning to reflect the favorable valuation. Today, the price of MOO is solidly above its 200-day moving average. Equally compelling, the 50-day climbed above its 200-day at the start of December, further solidifying demand for the global asset.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

Is The Negativity On Commodity-Related ETFs Misplaced?

Related Articles

Is The Negativity On Commodity-Related ETFs Misplaced?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Are you sure you want to delete this chart?
Write your thoughts here
Replace the attached chart with a new chart ?
Post also to:
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email