McCall: Time Ripe To Wade Into Commodities Markets

October 17, 2008

As oil prices keep sinking, longtime money manager and advisor sees opportunities.


Matt McCall is president of Penn Financial Group. The firm is based in Ridgewood, N.J., and serves as an investment advisor for institutional and high net worth clients. In addition, McCall is editor of  The ETF Bulletin, a weekly publication reaching about 1,000 paid subscribers. (IU): With prices of oil sinking, what are your views on commodities as a whole?

Matt McCall (McCall): I'm still very bullish on them long term. It still appears there's going to be a supply/demand issue for years out. We're looking at this as a buying opportunity for investors.

IU: Do you have a sense of what the timing on all of this is?

McCall: I'm looking out at least three years for my clients. I think commodities prices will come back before that time frame, but certainly prices should be higher three years from now than they are today. It's important to remember that commodities markets are acting very irrationally.

When oil was trading at $150 a barrel, the market obviously wasn't basing its decisions on fundamentals. But now that it's trading under $70 on Thursday, oil is very attractive. The sell-off has just been too overdone at this point.

IU: Any exchange-traded products or funds that you're suggesting to clients now?

McCall: As a whole for commodities, we like the iPath Dow Jones-AIG Commodity ETN (NYSEArca: DJP). It gives you everything from Metals to Energy to Agriculture in one portfolio. In this type of commodities market, staying diversified is important. DJP is good for individual investors since it provides them with all of the major sectors. Then, if they want to over-weight, they can add other ETFs.

In particular, on our radar is natural gas. The way we like to play that is through United States Natural Gas (AMEX: UNG). We're getting into an oversold situation in that market. And heading into winter, it's going to be easier to rely on natural gas since our main supplies are right here in the U.S. We also think that demand will get a boost from T. Boone Pickens and some other major oil players who are looking at natural gas as a way to alleviate this country's dependence on crude oil.

IU: T. Boone Pickens is also supporting wind energy. Are you?

McCall: Absolutely. Wind has been something the government has been discussing for decades. But now, with oil at relatively high prices, wind is an alternative we have to consider more closely. There's no doubt it's going to be a major energy source in the future.

I wouldn't over-weight it here, though. Ever since the wind ETFs started rolling out earlier this year, it hasn't been the right environment for making more equity purchases. But as the markets unwind, we'll definitely be looking at initiating positions in the sector. We're looking at First Trust Global Wind Energy (NYSEArca: FAN) and PowerShares Global Wind Energy (NasdaqGM: PWND). Right now, we're in the stages of evaluating both and keeping them on our watch lists.

IU: What about agriculture?

McCall: It was the hot investment in the second half of 2007. But we've seen a major sell-off in agriculture during the past six months. The leading ETFs providing exposure to that market are down around 50% since the beginning of this year. I think it's too volatile of a sector for the individual investor at this time.

For example, in a four-month period last year, the grains sector sold off by about 50%. That's just way too much volatility for the average investor.

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