TIPS Trumping Traditional Treasuries?

July 06, 2009


Alternative Investments




Physical commodities and commodity stocks cor­rected in June, but remain solidly positive in 2009. The strongest commodity sectors in 2009 have been those most sensitive to global economic growth, such as crude oil and industrial metals. These commodities have been most responsive to stimulative fiscal and monetary policies in
and other emerging markets, whose economies have been resilient in the aftermath of the global financial crisis.

Commodity indexes have been closely correlated with global stock indexes thus far in 2009, causing some investors to wonder if they are getting valuable diversification benefits from holding commodities in their portfolios. There is some validity to this argument, which is why we hold a separate position in physical gold (via GLD), which is the commodity least corre­lated with the global economy and stock markets. However, there are other commodity sectors, such as agriculture, which are not as sensitive to eco­nomic growth and could provide attractive returns even if more cyclical investments falter.

We see a high probability that diversified commodities funds will deliver returns superior to cash and Treasuries, and likely competitive with stocks, in the year ahead. Longer term, we consider the secular bull market in commodity investments to be intact, and we expect commodities will prove to be a good defense against inflation and a valu­able component of a diversified portfolio.


U.S. REIT Dividend Yield (NAREIT All-REIT Index)

1/98 - 6/09




Following the recent rebound in REIT prices, and also owing to dividend cuts and dilution from new stock sales, the yield on the NAREIT All-REIT index has dropped to 6.8%, which is not much higher than the average yield since 1998. This level of yield is uninspiring, given the negative fundamentals of the asset class. Other areas of the equity markets are more attractively valued, which argues for an underweight allocation to U.S. REITs.


J.D. Steinhilber is president of Agile Investments, a Nashville, Tenn.-based adviser. He can be contacted at: [email protected].



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