investing for a shorter term. We review ETF’s in a number of major asset classes to provide insight into building a long term investment portfolio that can bring the best risk adjusted returns even in the light of uncertain circumstances.
Despite the recent selloff, 2011 be an important year for commodities. Due to the Fed’s approach, the dollar will continue to drop which, in turn, makes owning a commodity an attractive investment. The commodities markets are classified into three major categories i.e.
- Food items
- Base metal and precious metal.
- Energy related commodities
The combination of slower growth in U.S. service industries and fewer German manufacturing orders helped drive the Standard & Poor’s GSCI Index of 24 commodities down 11 percent last week, the most since December 2008, and erased all the gains since mid-March.
Despite this, the recent growth in commodity markets is due to the following factors:
· More demand: The world population grew from 2.5 billion in 1950 to 6.7 billion by the end of 2010. The phenomenal growth in the population cause the agriculture related product demand to increase and this is not going to change
- Dollar lower: There has been a systematic devaluation of dollar by the FED over the last 2 years.
Commodities of the asset class table with excellent return of 39.21% in the last one year. The second position goes to US small cap growth with a return of 31.51%. Although the one year returns are good, the five year returns are not good.
The broad-based commodities table are as follows:
|Description||Symbol||1 Yr||3 Yr||5 Yr||Avg. Volume(K)||1 Yr Sharpe|
|GreenHaven Continuous Commodity||(GCC)||35.08%||-0.26%||NA||252||213.18%|
|iPath DJ-UBS Commodity Index Tracker||(DJP)||25.12%||-9.47%||NA||449||138.13%|
|iShares S&P GSCI Commodity-Index||(GSG)||18.14%||-19.3%||NA||671||91.86%|
|ELEMENTS Rogers Intl Commodity||(RJI)||28.59%||-9.45%||NA||706||150.16%|
|PowerShares DB Commodity Index||(DBC)||24.89%||-9.57%||3.48%||2,363||128.67%|
GCC clearly turned out to the winner with the annual return of 35.08% RJI take the second position followed by DJP from a volume perspective (high liquidity and low trading friction) DBC shows the best consistent performance over the year showing fair returns in terms in term of five year of around 6.47%.
The GCC portfolio has wide sector wise division such as Agriculture, Agriculture life stocks, Agriculture Grains, energy and metals. The sector division of investment provides an excellent hedge against various market outcomes. All the metals have rallied in the last 2 years and the energy price is also high giving the fund value an additional boost. GCC has an average annual return of 25.19%, the average volumes are low in relation to the other ETF’s but the reason is that the fund is newly established and it will likely grow. The expense to ratio is 0.85%.
The broad based commodities fund provides an effective hedge in periods of recession and rising inflation. World growth is expected to double by the end of the 2030 and we need an increasing food supply and energy to accommodate this. In the light of this, the prospects of the broad based commodity are very bright.
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.
LTI Systems, Inc. is the operator of MyPlanIQ.com and ValidFi.com. The founders of LTI Systems have extensive technology and business background in computer and semiconductor industries. They have been using the strategies provided by MyPlanIQ for their own personal retirement and taxable investments. The mission of LTI Systems is to make wealth management investment strategies that are used to be only accessible to institutions and high net worth individuals available to private investors with a fraction of flat cost and ease of use. The founders of LTI Systems, investors themselves, take pride in creating such a system and service for investors by taking the perspective from the investor side. They are using the system and the strategies for their own investment and align their interests with their customers.
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