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Energy Select Sector SPDR (XLE) $77.87 ($74.97 when published)
- An exchange-traded fund that invests in energy and has underperformed the S&P 500 by something like 100% in recent years. That has stopped with the price of oil no longer declining. It is unlikely that you are going to have a bear market in oil.
- XLE ETF strikes me as a good way to also get some exposure to the stock market. The relative performance of the XLE versus the S&P 500 has turned positive recently, and it is now above its 200-day moving average. I like that as a way of investing in this commodity idea.
Tortoise MLP (NTG) $20.36 ($18.78 when published)
- An income vehicle that has a lower risk profile
- What is interesting as a bond-surrogate investment is master limited partnerships, which don’t need oil to go up.
- You just don’t want it to go back down to $20, so you don’t worry about a bankruptcy situation. MLPs have tremendously underperformed the XLE.
- NTG has about a $1 billion market cap. It has a sister fund, which owns almost exactly the same assets, called Tortoise Energy Infrastructure [TYG].
- I chose NTG because it is a little bit cheaper. The yield on NTG is almost 9%, and if you agree with this underlying thesis, that you aren’t looking at tanking oil prices but reasonably strong commodities broadly, this is a good way of getting income.
- It is 32% leveraged now, according to the fund website. MLPs have been on a bumpy ride. They’re risky, so you want to make sure you buy them at the right time.
- This is interesting as a bond proxy because if yields go up, it is likely that this commodity thesis is playing out.
PowerShares Senior Loan Portfolio (BKLN) $23.15 ($23.10 when published)
- For those who want income and are worried about rising interest rates, and who might want to benefit from Libor going up.
- It invests in bank loans, which are senior in the capital structure. Bank loans are illiquid, but BKLN is an ETF, so it is easy for an individual investor to buy.
- Libor has been going up, so the fund yields 4%, net of fees. When Libor goes up now, it isn’t like a couple of years ago, when Libor would go up and you wouldn’t get a dividend increase.
- For investors who want low volatility based on interest rates, and yet a yield that’s nearly double that of a 10-year Treasury, BKLN is OK.
- One of the safer ways to get a decent yield in the fixed-income market.
iShares MSCI Brazil (EWZ) $43.61 ($42.84 when published)
- Is risky, but it is the best play on the commodity trend without being a commodity fund.
- It has roughly doubled off the bottom, as have emerging markets broadly. But as a portfolio holding, it is motivated by my commodity thesis.
- It is incredibly repetitive historically that commodities rally late-cycle. In fact, every recession in the U.S. since 1970 has been preceded by a massive commodity rally. The best way to play where we are in an economic cycle is through commodities.
WisdomTree Japan Hedged Equity (DXJ) $63.22 ($61.63 when published)
- Another market I recommended last year also shows a tremendous breakout. That is the Nikkei. I don’t have a great understanding as to why it is doing so well lately. There hasn’t been much currency movement.
- It was underperforming for the first half of the year. It’s got momentum now, and I could include it as a recommendation, as well, because the [Bank of Japan] is going to continue quantitative easing, while other central banks are doing less.
- The Japanese economy has finally improved and is growing again, and [the stock market] is cheaper than the U.S.