Timber has been weak since the Federal Reserve announced its enormous bond buying initiative. Agricultural grains have been even weaker since the peak of drought fears in mid-July. And crude oil? Instead of surging past $100 per barrel, it closed below $88 per barrel on 10/3/12.
The question is simple: If gurus from Jim Rogers to Bill Gross to Kyle Bass believe real assets belong in your portfolio, should you buy them now… when they are down below recent 52-week highs? By the same token, which Real Asset ETFs make the most sense for income generation, capital appreciation and/or inflation protection?
|Month-Over-Month Returns for Real Asset ETFs|
|MOM %||% Off 52-Wk High|
|PowerShares DB Industrial Metals (DBB)||8.7%||-8.9%|
|Guggenheim Timber (CUT)||5.5%||-4.8%|
|S&P Global Natural Resources (GNR)||5.5%||-8.2%|
|iShares Gold Trust (IAU)||4.9%||-0.5%|
|SPDR Dow Jones Global Real Estate (RWO)||0.3%||-4.2%|
|Vanguard REIT ETF (VNQ)||-2.3%||-4.6%|
|PowerShares DB Commodity (DBC)||-2.5%||-5.6%|
|ELEMENTS Rogers Internat Comm Agriculture (RJA)||-3.5%||-5.7%|
|PowerShares DB Oil (DBO)||-7.4%||-21.5%|
|Teucrium Soybean (SOYB)||-10.6%||-10.1%|
Gold (IAU) may be the safest and least volatile inflation-fighter in the mix. There’s simply no denying that China is massively stockpiling the yellow metal, let alone the fact that the world’s central banks are determined to devalue paper money. Greater demand, less supply… gold also has the potential for capital appreciation.
Yet precious metals fail to inspire on the income generation front. Here’s where real estate investment trusts, or REITs, have been making believers out of skeptics. Â Not only are REITs required to distribute 90% of taxable income, making them a popular cash flow generator, but REIT prices often go up with inflation. (Leases/rents that may be indexed to inflation comprise the majority of REIT income.)
That said, Vanguard REIT (VNQ) and SPDR Dow Jones Global REIT (RWO) have been anemic over the last 30 days. The VNQ:SPY price ratio shows that domestic REITs haven’t been this weak relative to U.S. stocks in roughly 6 months.
Indeed, there may not be a perfect answer for those who question the intermediate-term impact of globally coordinated quantitative easing. Commodities like oil have tanked, giving pause for concern in energy. And the stuff we eat? Crop output notwithstanding, the evidence supporting agriculture commodities is suspect as well.
On the other hand, with the exception of a few Real Asset ETFs, the pullbacks have been rather mild so far. Bass and Gross explain that it is “only a matter of time” before nations and institutional investors alike get tired of negative real returns in sovereign debt. They surmise that a monumental shift into real assets is inevitable.
Again, if you share their beliefs, many of the above-mentioned Real Asset ETFs might be “on sale.” PowerShares DB Base Metals (DBB) had been experiencing a significant downtrend since March. By September, however, DBB’s price climbed above its 200-day moving average; meanwhile, the moving average itself finally developed a positive slope.
I believe it is sensible to add Real Asset ETFs to a portfolio. I have been rather outspoken about a preference for natural gas producers via First Trust Revere Natural Gas (FCG). Others may see less political controversy with a position in Guggenheim Global Timber (CUT). Perhaps more importantly, these and other Real Asset ETFs have lower correlations with the broader stock market, making them desirable for genuine diversification and non-correlation.