Avoiding Mea Culpas With Alternative Assets

Commodities may have been a bigger disappointment than REITs. The article says there are 238 ETFs and ETNs, and a lot of them were down a lot in 2008. The decline could have been because they had too large of a run-up, or the pricing-in of a global slowdown, or both. For example, United States Oil ETF (USO Quote) and iPath AIG Nickel ETN (JJN Quote) were each down more than 50% in the past year, and the e-Tracs CMCI Long Platinum ETN (PTM Quote) fell a similar amount since May, when it was first listed.

I am a believer in having a moderate exposure to commodities for a couple of reasons. Gold has a track record of going up when there is an external shock to the market, such as on Sept. 11, 2001. In that light, it becomes more of an insurance policy. If inflation does get out of hand and gold benefits from that, fine, but my primary interest is protection against a shock.

There is also a supply-and-demand story with various segments of the soft and agricultural commodity space. This ties in with an ascendancy of a middle class in many emerging markets.

Part of that ascendancy is a healthier diet with more protein. This theme, which I would expect to be played out over many years, will have bumps along the way. But with prices being down, I recently added PowerShares Agricultural ETF (DBA Quote) for clients. Between DBA and SPDR Gold (GLD Quote), clients' total exposure to commodities is around 5%.

2008 Performance: DLSAX, RYMFX and DIAMX TradeStation

The final alternative segment the Journal looked at was what it referred to as "hedge strategies." I've written several times about a few mutual funds that operate in this space. Last year I added the Rydex Managed Futures Fund (RYMFX Quote) for clients, and recently I added the Dover Long Short Sector Fund (DLSAX Quote). Both are absolute return funds that weathered the 2008 bear market very well. Not all funds in this segment fared as well.