Portfolio Review: Commodities Dip Seen As Good Time To Buy

March 25, 2008

Advisor also bullish on currencies and emerging markets while awaiting U.S. stocks to show stronger signs of a rally.


While the market was sinking in February, Ian Naismith managed to turn a slight profit.

The portfolio manager at Sarasota Capital Strategies in Osprey, Fla., says the firm produced almost a 1% gain for his high-net-worth and institutional clients during the month. By contrast, the broad stock market lost around 3.5% during that time frame.

"We made some major changes in January that set us up for a little smoother ride," said Naismith.

Last December, a number of his portfolios went to cash after hitting predetermined stop-loss orders on several exchange-traded funds. "We have a few basic tenets, one of which is to keep our losses very shallow," Naismith said.

Early into 2008, Sarasota's managers used some of that cash to take a 7.5% position in ProShares UltraShort S&P 500 ETF (AMEX: SDS). "It essentially gave us an ability to take a double-short position on the broad stock market," Naismith said. "We wound up getting out of it in early March with a nice gain."

He uses technical indicators to tell him when to transact in ETFs. "Most of the technicals were giving us signs that the S&P 500 was oversold, which turned out to be correct," Naismith said. "There was a short rally and the markets continued to get more choppy right after we moved out of SDS."

Bet Spreading 

In January, Naismith also decided to spread his bets a little more. That included investing in the exchange-traded note Elements Rogers International Commodity Index (AMEX: RJI). "Jim Rogers has a very good track record with commodities and that ETF has the broadest representation in that asset class," Naismith added.

It did well for awhile, but is lagging in March. "For us, it'll likely become a core position," Naismith said. "At this point, its diversification across this asset class is unparalleled. There's nothing close among commodity ETFs or ETNs on the market."

Commodities are cooling down. Naismith wouldn't be surprised to see gold drop into the low-$800/ounce price range. "Gold has become a crowded trade," he said. "It's showing signs of being overbought at this point."

But longer term, "we believe that gold as well as most commodities are in a secular bull market that could last a decade," he added.

So Naismith's viewing any current downturn as a period to buy on any dips in commodity prices.

Among longer-term positions, he's holding iShares Latin America 40 Index (NYSE: ILF). "It's beating the U.S. broad market handily," Naismith said.

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