Non-Stock Asset Classes

by Jay Pestrichelli on August 14th, 2013

Wait…what? There are other assets besides stocks?

As the stock market continues, it’s worth remembering that all asset classes aren’t having the banner year we’re seeing in equities. In fact, many are having a terrible year. We look to the ETF market to see how some commodities and bond markets are faring.
 
First up is the bond market. No surprise here, that the annual performance is poor and it’s all based on the concerns of a rising interest rate environment.  Long-dated treasuries, represented by TLT, have done the worst followed by corporates, LQD, and then junk, JNK.  We threw in the AGG which is representative for the overall bond market.

Next class to look at is commodities. Precious metals like gold, GLD, and Silver, SLV, have had a rough year down about 20%. Platinum, PPLT hasn’t been so bad, as it is up slightly; however, it has participated in the sell off from mid April, nonetheless. 

Energy, oil, OIL,  in particular, has been the commodity that has held up through the commodity sell off. Unfortunately, it means we’re all still paying more than we like at the pump as gasoline, UGA, has also held up higher. But commodities like coal, KOL and natural gas, UNG, have dipped down.

The good news for consumers comes in the drop in grains. Soy, SOYB, while down the least is still lower by 12% this year. Corn, CORN and wheat, WEAT, are even lower at down 30%. These drops should help keep the bill at the grocery store a little lower over time.
With most of these commodities down, it would seem like a good time to buy. A phrase I keep hearing over and over in my head is “It’s hard to get hurt falling out of the basement window”. Of course it is quickly followed up by “Don’t try to catch a falling knife”.  Truth be told, we don’t typically invest in commodities, but with their declines slowing, one can theorize that the rotation out is closer to its end than beginning.

 If your inner guru is looking for an idea here, consider DBC. It is the PowerShares commodity index ETF. The holdings are skewed to the energy sector right now.  In part because those have done the best, but has the running room to grow, if some of the depressed materials start to rebound.  Here's its top 10 holdings:
It has been around since 2006 and has about $6B in assets, not to mention a decent options market so you can hedge it.  Either a long ITM call or a married put will get you hedged exposure and it can be put out to Jan 2015 if so desired.


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