COMMODITY INVESTING
auto food chain in 2009 after vehicle sales jumped nearly 50% from the previous year. The country then saw auto sales rise another 32% in 2010. Bernstein Research says China has put more new vehicles on the road over the past four years than the previous 30 years. Despite this growth, the country still has a low rate of vehicle ownership and the total number of cars sold per capita is 13 times smaller than the US, according to McKinsey research.
Sample Commodity Use in China: % of World Consumption, 2012
Cement 72%
Sector
Information Technology Index Financials Index Energy Index
HealthCare Index Industrials Index
Consumer Discretionary Index Consumer Staples Index Meterials Index Utilities Index
Telecoms Services Index
Weightings 19.02% 13.43% 12.27% 11.85% 10.69% 10.67% 11.54% 3.50% 3.87% 3.17%
Generating Alpha Through Natural Resources While the overall trend is up, periods of volatility are
an intrinsic part of this supergrowth. Not every down period is a sign of demise – even a broken clock is right twice a day. It’s the wise investment managers who learn to manage expectations by understanding the difference between short-term corrections and secular long-term bear markets. To benefit from the tremendous growth in emerging
Iron Ore 65%
market demand, advisors should consider increasing a portfolio’s exposure to the energy and materials sectors compared to the overall S&P 500 Index. A typical portfolio currently invested in the S&P 500 Index as a core holding would be weighted only about 15% in energy and basic materials. This exposure is down significantly from 1980 when the two combined to make up roughly 35% of the index. Emerging markets are experiencing only the
Steel 43%
Aluminium 45%
We believe precious metals (gold and
silver), oil and copper are poised to do well in 2012 as confidence in the global economy is restored and policymakers implement easing measures. BarCap says the current environment, “should favour commodity assets” and it sees benchmark commodity returns around 10% for this year.
14 March 2012
While the overall trend is up, periods of volatility are an intrinsic part of this supergrowth
beginning of a tremendous lift in the uses of energy and materials as these countries build their economies and squeeze the existing supply of the world’s natural resources. In practice, we suggest seeking an active fund manager with a focus on these supercycle sectors to add alpha to portfolios as well as help clients take advantage of this multi-year boom in commodities. •
Frank Holmes is the CEO and Chief Investment
Officer of U.S. Global Investors, Inc., an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world.
Holmes is also the co-author of The Goldwatcher: Demystifying Gold Investing, an investor’s
guidebook to investing in gold mining companies.
www.usfunds.com
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