Should Commodities be in Your Portfolio?

CHICAGO--(BUSINESS WIRE)--With the stock and bond market on a steep decline, the weak U.S. dollar and rising energy and food prices, it might be time to adjust your portfolio. The latest victims are the airlines struggling with increasing fuel prices, though higher commodities prices translate into higher prices for all consumer goods and services. Commodities traders have recently been scrutinized for engaging in speculative trading practices to create artificial price increases.

“I have never seen so many markets exhibiting such powerful trends”

Is this just another attempt at explaining why gas prices have gone through the roof or is it a legitimate complaint? Bob Pardo, a leading Commodities Trading Advisor (CTA) and private fund manager of Pardo Capital Limited thinks that bull markets, whether in stocks or commodities, tend to attract speculators. To some traders, no price is too high. Globalization and technically more efficient trading systems add to the volatility. John Karvelas, president of Brokerage & Trading at Vankar Trading Corporation, agrees that while most investors should add commodities to diversify their portfolios, they should tread carefully and plan for the long term.

So, what is the average investor to do? Should he cancel his 401k? Sell everything? Commodities trading, after all, is mainly for the rich, and inaccessible to the average investor.

“While it takes upward of $50,000 to invest with a commodities trader, you can still participate by investing in commodity-related exchange-traded funds (ETF’s) or stocks that invest in commodities such as energy and mining. Also, consider mutual funds that invest in a mix of stocks and commodities,” said Pardo.

Since commodities have been experiencing such a run-up, isn’t it perhaps too late to invest now? Remember the late 90’s as everyone swarmed into the tech sector and prices went through the roof. In early 2000, this trend abruptly ended as stocks plummeted. “I have never seen so many markets exhibiting such powerful trends,” Pardo explains. “The difference in today’s market may be the influence of energy — in particular oil — on other commodities which is causing strong inflationary pressures. But don’t forget,” he adds, “investing should be done for the long term. Markets eventually adjust and bull markets fade but a good trader can and should benefit from increasing as well as decreasing price trends.”

Pardo uses a mathematical trading system with superior results, ranking his fund XT99 — now in its 10^th year — consistently in the top category of comparable funds. He attributes his fund’s success to a unique combination of years of experience, pioneering trading strategies and advanced technology.

For the rest of us, investing wisely may have become even more challenging. No matter what you decide to do — don’t let panic or greed take over. The best opportunities usually arise after the masses have bailed.

Sources

Bob Pardo is a Registered Commodities Trading Advisor (CTA) and fund manager of XT99, a Futures Investment Fund http://www.pardocapital.com/

John Karvelas is president of Brokerage and Trading at Vankar Trading Corporation www.vankartrading.com

S&P Commodities Index http://www2.standardandpoors.com/spf/pdf/index/SP_GSCI_Factsheet.pdf