Shop Around for Commodity Funds

Likewise, there are iPath ETNs tracking individual metals (nickel and copper), whereas the corresponding Elements ETN provides exposure to 10 metals.

The three iPath metals ETNs are very interesting. Things like copper and nickel tend to be a good way to play the early part of the economic cycle. The basic idea is that as an economy starts to turn around, early (manufacturing) stage metals like nickel and copper start to get purchased and consumed first. Phelps Dodge stock used to be a similar play.

The insatiable demand for these and other types of metal, most notably from China, may have temporarily altered their cyclical nature. Regardless of what we hear about the Chinese stock market and how overvalued it is, there is a massive infrastructure build-up in China. GDP has been growing by double digits and the hot growth is likely to persist for a while.

Even if there is a huge stock market correction, demand for these metals is unlikely to be derailed in such a manner as to bring the commodity story to an end. The building up and out in China is bigger than the stock market. Obviously if you disagree you would want to avoid these metals.

I am not a big fan of owning commodities from the energy complex. They tend to be very volatile even as commodities go. The reason I own commodities is to offer diversification for an equity-based portfolio while lowering overall volatility. I think achieving this with energy commodities is difficult and would rather own dividend -paying oil stocks instead of oil. Obviously others will view this differently.