Although commodities are often overlooked by many investors,
these natural resources are considered by many to be good
diversifiers in a portfolio. This has been particularly important
as of late as many global markets have seen correlation levels
soar with even emerging markets moving in lockstep with developed
nations like the U.S.
However, not all commodities are by any means the same as the
risk and return profile for these products vary greatly across
the various types. This means that investors need to zero in on a
specific sector or commodity in order to obtain the best possible
returns in the space (see
The Three Biggest Mistakes of ETF Investing
After all, in the trailing one year period, performances were
vastly different across the various commodities. Several-like
those in the grains market-soared by double digits, while
others-especially those in the base metal and agricultural
markets-saw performances that declined by double digits.
Clearly with this backdrop, picking the correct commodity
sector is key to investor returns in this relatively uncorrelated
space. Unfortunately, commodities can be extremely volatile so it
can help to take some advice on the subject from some of the key
One way to do this is by looking at recent commodity price
forecasts by some of the leading investment houses out there.
Fortunately for us,
Morgan Stanley (
has just released its
latest Commodity Manual
with price targets for 14 different commodities (read
Buy The Ultimate Commodity with These Water
Below, we highlight five ETF plays for some of their bullish
calls for this year for investors seeking to follow Morgan
Stanley into some commodities which could be in line for a solid
Continued global central bank easing is the main reason for
Morgan Stanley's bullish prediction for gold this year. More of
these programs could help to boost gold prices, while an
expansion of Japan's easing could also act as a catalyst.
However, they did note that gold sales are at a low level when
compared to the past few years. Due to this, the bullishness
could have a cap, at least until more buying takes place.
are quite abundant for investors, as there are a few choices. The
most popular are
, while ETF Securities also has regional gold picks (Asian)
, and Swiss (
). Futures are represented too, with
being options for investors seeking to take this route (read
Gold ETFs: Is the Sell-Off Overdone?
The bullishness for platinum is largely driven by supply
concerns stemming from South African production. The country has
seen a number of strikes across the landscape, crushing any
surplus that was in the market.
Due to this, prices are expected to rise as demand continues
to hold firm. This has been led by strong industrial demand-and a
booming auto market-so this could be a new trend in the space
For ETFs to invest in platinum, investors have a few options.
There are two futures-based choices-
-while there is also a physically backed choice,
. The ETF Securities Physically Backed fund is the newest, but it
is also the cheapest way to play the space.
The only agricultural commodity on the list, cotton could be a
strong performer this year thanks to China. According to the
report, China is beginning to lockup the market with at least
half the global stocks in its possession (see
Buy American with These Three Commodity ETFs
Furthermore, with grains at elevated levels, some are
predicting that cotton supplies might fall a bit this year as
well. If supplies decrease and demand remains firm, it could be a
solid year for the fluffy commodity in 2013.
Currently, there are two futures-based ways to play cotton,
both coming to us from iPath, BAL and CTNN.
is the older and cheaper ETN, although it offers less in contango
protection-but better volume-than
Morgan Stanley's commodity team is looking for silver to
outperform its yellow cousin over the course of the year. Much
like gold, the profile is driven by money printing, but the
supply/demand picture is also favorable for this often volatile
To play this metal in ETF form, investors have a couple
iShares Silver Trust (
is easily the most popular and the oldest, while
ETF Securities Physical Silver Trust (
is the cheapest.
Both of these target the metal in physical form, holding it in
secure vaults. Meanwhile, there are also some futures options as
for an ETN structure and then
for an ETF from PowerShares (read
Is the Silver ETF Showing Technical Weakness?
Broad Precious Metals
Clearly, Morgan Stanley is expecting good things out of the
precious metals market this year, pretty much across the board.
So it may not be a bad idea to invest in the whole space with a
One way to easily do this is via
ETF Securities' Physical Precious Metal basket Shares (
. This fund charges investors 60 basis points a year but holds
all four of the precious metals in physical form.
The ETF is skewed towards gold (52%), and then silver (36%),
while platinum and palladium account for the rest. Still, the
fund is pretty much the only way to gain basket, physical
exposure to all four in ETF form and as such could be a great
pick for investors seeking a broad precious metals play in
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Author is long IAU, gold & silver bullion.
IPATH-DJ-A COTN (BAL): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
ETFS-PH PRC MTL (GLTR): ETF Research Reports
ISHARS-GOLD TR (IAU): ETF Research Reports
MORGAN STANLEY (MS): Free Stock Analysis
ETFS-PLATINUM (PPLT): ETF Research Reports
ISHARS-SLVR TR (SLV): ETF Research Reports
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