Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Natural Resource Equities?
Old 09-23-2016, 03:32 AM   #1
Full time employment: Posting here.
 
Join Date: Sep 2012
Posts: 746
Natural Resource Equities?

https://www.gmo.com/docs/default-sou...s.pdf?sfvrsn=3

Above is from Jeremy Grantham & Co this month.

He points out that with the decline in commodity prices, a broad index is getting less than half the exposure to resources than it was in the recent past. Yet NR equities have performed about the same as the broad market, with little or even negative long term correlation with overall equity returns.

Makes a decent case for reducing portfolio risk without sacrificing returns, as bonds do, by investing in NR equities, and that now is a reasonable time to do it.
__________________

__________________
If you live to a hundred, you've got it made. Very few people die past that age. George Burns
gcgang is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-23-2016, 11:17 AM   #2
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 3,376
He could be wrong when saying the "The S&P 500’s exposure to energy and metals companies has dropped by more than 50% over the last few years"

If he is counting the $$$$ value it's much lower, but perhaps the share value is constant. Since he does not define what he is counting it's pretty useless or misleading.

He also says " many commodities will rise in the decades to come"
Big deal, lots of stuff will , and in the decades to come many of us will be dead.

If you think NR has declined in price too much , and that demand will pick up again, then it seems like an ok investment.
The good thing is he is recommending investing in producers etc of resources and not in the actual commodities as actual commodities usually hurt the small investor as they get fleeced each month in the contracts.
__________________

__________________
Sunset is offline   Reply With Quote
Old 09-24-2016, 09:05 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,568
It appears to me that Grantham has paid MSCI to create an index for publication of this article of a selection of companies as I do not see where he is naming the actual index or ETF he is using for his proven long term equity return of natural resource companies.

Therefore as is always the case in articles such as these there is no way to debate the presentation. It seems the main arguement he is making is that natural resource stocks, again for what a portfolio of these stocks is unknown, are negatively correlated to VTI and yet over the long term provide higher returns than VTI leading to better long term returns with less volatility.

It is possible as this is not significantly different than the idea behind the permanent portfolio, though that idea allows one to actually go back and look at results and actually determine how to utilize the strategy.
__________________
Running_Man is offline   Reply With Quote
Old 09-24-2016, 09:19 AM   #4
Thinks s/he gets paid by the post
 
Join Date: May 2014
Location: Utrecht
Posts: 1,838
Not convinced based on that article, because he doesn't address one item: why would this portion of the equity market outperform in the future?

It has in the past based on some indicators, that's however not an explanation.

Example: Oil companies had a great stretch since 1920 at least, with ups and downs. What is not addressed is that this time, it might be different. Because the planet is trying to embark on de-oiling.

As long as the fundamentals are holding up, it's fine. In some cases, they aren't or very likely won't.

Put differently: there is a reason this segment is down, so address the reason.
__________________
Totoro is online now   Reply With Quote
Old 09-24-2016, 03:31 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,005
Given the choice I'd go with Jeremy. For a properly capitalized investor, there is a very low probability that he would get into trouble with Grantham's recommendation.

Commodity based investments are talked about occasionally, and rarely does anyone mention one of the three advantages Grantham mentions of equities of commodity sensitive businesses-no roll penalty when markets are in contango.

Many investors did not realize that a few years ago when commodity futures suddenly were an "asset class" the positive results being reported were due to markets being in normal backwardation, and when they went to contango returns collapsed.

Ha
__________________
haha is online now   Reply With Quote
Old 09-24-2016, 10:43 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,568
Quote:
Originally Posted by haha View Post
Given the choice I'd go with Jeremy. For a properly capitalized investor, there is a very low probability that he would get into trouble with Grantham's recommendation.

Commodity based investments are talked about occasionally, and rarely does anyone mention one of the three advantages Grantham mentions of equities of commodity sensitive businesses-no roll penalty when markets are in contango.

Many investors did not realize that a few years ago when commodity futures suddenly were an "asset class" the positive results being reported were due to markets being in normal backwardation, and when they went to contango returns collapsed.

Ha
But again what is it he is suggesting? A fictitious basket of stocks? I donít see an actual recommendation against which his assumptions can be tested.
__________________
Running_Man is offline   Reply With Quote
Old 09-25-2016, 12:39 AM   #7
Full time employment: Posting here.
 
Join Date: Sep 2012
Posts: 746
Stocks - Sectors | Industry SIC Codes

I have no clue what they used, but looking at the S&P SICs above you could use 10, 12-14 and 24 and get a decent "index" (metals, mining, oil and lumber).
__________________
If you live to a hundred, you've got it made. Very few people die past that age. George Burns
gcgang is online now   Reply With Quote
Old 09-25-2016, 05:33 AM   #8
Full time employment: Posting here.
Golden sunsets's Avatar
 
Join Date: Jun 2013
Posts: 594
Quote:
Originally Posted by haha View Post
Given the choice I'd go with Jeremy. For a properly capitalized investor, there is a very low probability that he would get into trouble with Grantham's recommendation.

Commodity based investments are talked about occasionally, and rarely does anyone mention one of the three advantages Grantham mentions of equities of commodity sensitive businesses-no roll penalty when markets are in contango.

Many investors did not realize that a few years ago when commodity futures suddenly were an "asset class" the positive results being reported were due to markets being in normal backwardation, and when they went to contango returns collapsed.

Ha
"Backwardation" .... "Contango".. Please explain. I'm not a neophyte but am not familiar with these terms (I mean no disrespect Ha, I'm genuinely interested). I started a thread the same day that this thread began, asking for suggestions for a low cost commodity ETF. On this topic, our AA for years has called for a 5% allocation to commodities as part of our 55% allocation to equities (as an aside we also have a 5% allocation to Real Estate and a 5% allocation to Emerging Markets,again all part of the 55%.) We have used XLB, which is a basic materials fund and PRNEX, which is approximately 50% energy a much smaller percentage basic materials and then real estate(probably timber) to meet that 5%. Last year our overall XIRR lagged the S&P, due to Commodities and Foreign as well as EM all underperforming. This year the opposite has occurred. Our XIRR on our total investment portfolio including cash is a couple of percentage points higher than the S&P which is excellent seeing that 45% of our total investments are in bonds, bond funds and cash. So we do find these asset classes to be diversifies and not always correlated to the broader market. I only wish I could find a cheaper commodity index fund than the two we own. As yet no real alternatives have been suggested and my research yield nothing cheaper.
__________________
Golden sunsets is offline   Reply With Quote
Old 09-25-2016, 07:11 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,005
Quote:
Originally Posted by Golden sunsets View Post
"Backwardation" .... "Contango".. Please explain. I'm not a neophyte but am not familiar with these terms (I mean no disrespect Ha, I'm genuinely interested). I started a thread the same day that this thread began, asking for suggestions for a low cost commodity ETF. On this topic, our AA for years has called for a 5% allocation to commodities as part of our 55% allocation to equities (as an aside we also have a 5% allocation to Real Estate and a 5% allocation to Emerging Markets,again all part of the 55%.) We have used XLB, which is a basic materials fund and PRNEX, which is approximately 50% energy a much smaller percentage basic materials and then real estate(probably timber) to meet that 5%. Last year our overall XIRR lagged the S&P, due to Commodities and Foreign as well as EM all underperforming. This year the opposite has occurred. Our XIRR on our total investment portfolio including cash is a couple of percentage points higher than the S&P which is excellent seeing that 45% of our total investments are in bonds, bond funds and cash. So we do find these asset classes to be diversifies and not always correlated to the broader market. I only wish I could find a cheaper commodity index fund than the two we own. As yet no real alternatives have been suggested and my research yield nothing cheaper.
Contango Vs. Normal Backwardation | Investopedia
__________________
haha is online now   Reply With Quote
Old 09-25-2016, 07:50 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,005
Quote:
Originally Posted by Running_Man View Post
But again what is it he is suggesting? A fictitious basket of stocks? I don’t see an actual recommendation against which his assumptions can be tested.
Don't exactly know how to answer your Q. Grantham is a money manager, perhaps he wants to save something to charge his clients for.

Certainly people did theme investing long before there were products available. What I feel is often the more something has been pre-chewed for me, the more of its flavor has been already enjoyed.

I have made commodity based investments since the 70s, sometimes in futures, and more often and more successfully in equities. It hasn't been fabulous, but it has been pretty good and I feel at least somewhat secure that some new invention is unlikely to make obsolete whatever I have invested in. Only somewhat secure, because the thought is now around that demand for physical commodities may disappear or almost disappear forever. Ideas come and go, but while cheap can be a value trap, and picking out survivors is tricky, with reasonable diversification this is not really impossible. My core belief is that commodity markets are mainly cyclical, and will more or less remain this way.

Right now I am overweight timber. For me it is very easy to get long positions in trees. I am not by any means a silviculture expert, but I have lived in timber country and to some extent still do, even here in the city. The monster timber firm in the world today is Weyerhaeuser, and it recently moved HQ to Pioneer Square right here in downtown Seattle. I have invested in timber by going out and buying small pieces of timber property, and much more by buying beat-down value laden growers on the NYSE. Unlike all my other investments over the years, I have no losses in this sector.

I think interest in this form of investing is mostly a function of personality. Some like this form of investing, more do not.

I am certainly not trying to sell this.

Ha
__________________
haha is online now   Reply With Quote
Old 09-25-2016, 08:44 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 6,862
The timber industry largely side steps this issue since trees arent mined ( gee, I have a solid grasp of the obvious).... But, I wonder if technology has brought an added risk to commodities? This being in efficiency in locating, mining, and bringing to market these resources. This has bothered me as an investment option, because I see how it has impacted oil production here.
__________________
Mulligan is online now   Reply With Quote
Old 09-25-2016, 09:26 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,005
Quote:
Originally Posted by Mulligan View Post
The timber industry largely side steps this issue since trees arent mined ( gee, I have a solid grasp of the obvious).... But, I wonder if technology has brought an added risk to commodities? This being in efficiency in locating, mining, and bringing to market these resources. This has bothered me as an investment option, because I see how it has impacted oil production here.
Trees are also affected, though not in the sense that you mentioned. Pretty easy to find the timber resource since you mostly planted it! But who might have imagined that 8 years into a recovery from a really big real estate bust housing starts would only be a little over 1.1 million?? https://www.nahb.org/en/news-and-pub...8-percent.aspx

A SFH uses roughly 5x the lumber per dwelling as a multi-family unit, and a much larger proportion then usual of post recession starts have been multifamily. I agree with you Mulligan that there are legitimate questions about commodities. But I only buy when things have been pretty well bombed, so the timber issues that I bought in the mid 2000s have gained some, or gained a dramatically, plus provided good annual income to boot. I am even modestly ahead on energy investments. It is not widely appreciated that timber reits typically make payouts that are classified and long term capital gains, so this is a help

I also think that your point about more efficient finding of resources, and the production or mining of these resources is important. But this must also be balanced against the reality that the best resources get discovered and produced first, so the world is getting better at finding a dwindling resource. On balance, I feel that the main threat to commodity investing will be demand, and specifically, recession/depression. More of the current crude oil glut is caused by OPEC changing from a balancer role to a role of trying to destroy a competitor. I also believe that should interest rates return to just the long term a average, much tight oil supply will no longer be economic at the prices that it is now.

Many feel that electric cars will destroy fossil fuels sooner rather than later. But are friendly fairies going to generate the electricity?

IMO, investing is rarely easy!

Ha
__________________
haha is online now   Reply With Quote
Natural Resource Equities?
Old 09-25-2016, 09:47 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 6,862
Natural Resource Equities?

Ha, I flat out just dont get the oil market and stock pricings. I bought Chevron at $104 two and half years ago (sold a few months later at a quick 10% gain) when oil was $100 plus a barrel. So now with oil halved Chevron is still worth nearly a $100? I dont get it.... Has to be yield chasers... The barrel pricing is even more beyond me. If world wide supplies starting today were underproducing usage it would take years and years to burn off the excess supply.
So like you said, investing isnt easy, so I stick to what I know, and stay in that sandbox as much as I can. It keeps me from getting beat up too much.
__________________
Mulligan is online now   Reply With Quote
Old 09-25-2016, 12:54 PM   #14
Recycles dryer sheets
 
Join Date: Aug 2009
Posts: 413
Quote:
Originally Posted by Running_Man View Post
But again what is it he is suggesting? A fictitious basket of stocks? I donít see an actual recommendation against which his assumptions can be tested.

I wonder would GUNR fit the bill?


http://www.investopedia.com/articles...artner=YahooSA


Sent from my iPad using Early Retirement Forum
__________________
bmcgonig is offline   Reply With Quote
Old 09-25-2016, 06:19 PM   #15
Full time employment: Posting here.
 
Join Date: Sep 2012
Posts: 746
Golden Sunset- looks like the three ETFs mentioned in bmc's post, all under 0.5% ER, might answer your other post. Thanks for the info, bmc.
__________________
If you live to a hundred, you've got it made. Very few people die past that age. George Burns
gcgang is online now   Reply With Quote
Old 09-26-2016, 06:42 AM   #16
Full time employment: Posting here.
Golden sunsets's Avatar
 
Join Date: Jun 2013
Posts: 594
Quote:
Originally Posted by gcgang View Post
Golden Sunset- looks like the three ETFs mentioned in bmc's post, all under 0.5% ER, might answer your other post. Thanks for the info, bmc.

Thanks Gcgang. It does appear that it might be a good alternative to PRNEX with a slightly lower ER. Time to do some research.


Sent from my iPad using Early Retirement Forum
__________________
Golden sunsets is offline   Reply With Quote
Old 09-30-2016, 08:08 AM   #17
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 22,381
Interesting blog entry by Michael Pettis on China. He makes a few comments on resources, based on his analysis of the Chinese economy. He suggests metals may decline further in price, makes no prediction on energy due to non-economic factors, and thinks demand for agricultural products may continue to strengthen as the Chinese consumer sector continues to grow.

No link, because his site *China Financial markets) is (typically) infected and I can only access it with my iPad. I'm posting this because Pettis is one of the world's leading economic experts on the Chinese economy and it's impact on global trade, labor and resource prices.
__________________
MichaelB is offline   Reply With Quote
Old 10-01-2016, 02:20 PM   #18
Thinks s/he gets paid by the post
 
Join Date: May 2014
Location: Utrecht
Posts: 1,838
Animal protein probably will keep growing, poultry especially. Not really a commodity I guess.

Everything else, who knows. I sure don't.
__________________

__________________
Totoro is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Is there a "Make it Yourself" Book/Guide/Resource nico08 Other topics 13 02-25-2013 04:02 PM
Is there a FIRECALC expert resource? Midpack FIRECalc support 0 02-20-2013 08:42 AM
Effective Federal Tax Rates Resource Turtle FIRE Related Public Policy 2 09-21-2010 10:28 AM
Water resource companies.... Art G Stock Picking and Market Strategy 15 05-29-2008 06:36 AM

 

 
All times are GMT -6. The time now is 10:00 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.