Stay On the Commodities Highway
By Frank Holmes, CEO and Chief Investment Officer
NEW YORK (
Cautious investors might note that this is a significant change compared to the storm we've been driving through over the past several months. Goldman bases its view on a number of compelling factors that reveal improved conditions:
1. Prices have been pushed below fair value. Commodities have underperformed all other assets, says Goldman. The U.S. Global investment team tracks numerous resource subsectors' daily movements, and looking over the past 60 days, the Morgan Stanley Commodity-Related Equity Index, as well as oil and gas, fertilizers, construction and engineering subsectors, have experience double-digit declines, triggering a -1 sigma move. This is a sign that several commodities indices may be oversold; historically, these dips provided buying opportunities.2. China and the U.S. have been posting improved data. Forward-looking survey data for U.S. is more positive and China's activity measures have been "in line with expectations," says Goldman. 3. Policymakers are taking accommodative action. Recently, we've seen
Don't Miss the Entrance RampMany institutional managers have exited the commodities superhighway in favor of cash -- currently at the third-highest level on record -- or technology stocks. In its global fund manager survey this month, Bank of America-Merrill Lynch found that advisors' allocation to commodities reached its lowest level since February 2009. Instead of commodities, global managers are favoring technology. BofA-ML calls tech "the most loved sector by far," with managers' overweighting the sector an average of more than 40%. On the opposite side of the scale are basic materials and utilities sectors.
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