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Hog Wild for Commodities?
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“Unusually uncertain.” Simple words uttered on July 21st by Federal Reserve Chairman Ben Bernanke when discuss-
3 :KDW ,QYHVWRUV ing his economic outlook during a Senate Banking Committee hearing.1 If there’s one bad omen for the financial
5HDOO :DQW markets, it’s uncertainty. And with the Federal Reserve Chairman expressing his lack of clarity, stock markets quickly
headed south; the Dow Jones Industrial Average closed the day down 109 points.
Chairman Bernanke’s quote was in line with a larger sentiment of worry in the markets. Government debt and
deficits are high, unemployment persists, and a double dip in the economy is a possibility. Paradoxically, fears of
both inflation and deflation run rampant in the media. It certainly feels uncertain.
This feeling has lead some investors to wonder if they would feel safer by putting money into something they
view as “real,” like commodities. Commodities are appealing in that they may act as a natural hedge against
rising prices, and have the potential to “zig” when the rest of your portfolio “zags.”
Investors can certainly buy commodities directly — stacking gold bars in the attic, raising a plethora of pigs in
the backyard or filling the garage with barrels of oil. Yet most investors would rather not bear the costs and risks
of physically holding commodities.
Additional investment opportunities are expanding each year. Some investors look to gain access through Mutual
Funds, Exchange Traded Funds (ETFs) or Exchange Traded Notes (ETNs), which attempt to track the market
prices of traded commodities. Some work well, but others suffer from high management and trading costs, large
tracking errors or taxation issues.
There is another way…
If you are invested in a broadly diversified
mutual fund, such as an SP 500 Index ,QGLUHFW RPPRGLW
fund, you may already have significant ([SRVXUH
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exposure to commodities. While investing
in the companies that make up the SP ,QGXVWULDO 0DWHULDOV
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500 won’t explicitly buy you bars of gold or
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barrels of oil, it does gain you partial owner-
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ship of companies like Exxon, Chevron and
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Freeport-McMorRan Copper and Gold. +DUGZDUH
In fact, 11% of the SP 500’s market capi- +HDOWKFDUH
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talization now comes from companies in
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the Energy Sector.2 Companies in the
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Industrial Materials sector, which includes 8WLOLWLHV
LWI Financial Inc. (“Loring Ward”) firms that provide or manufacture com- 6RXUFH 0RULQJVWDU 'LUHFW $XJXVW
Securities offered through Loring modities, building materials, chemicals or
Ward Securities Inc., member See Hog Wild for Commodities... on Page 4
FINRA/SIPC 10-232 (9/10)
0OMPOPM@? DIQ@NODI$ In An Unstructured World

2. Structured Investing In An Unstructured World
What Investors Really Want... continued from Page 3
We want to stay true to our values We want education, advice, and protection
Some socially-responsible investors are willing to sacrifice invest- Because we are increasingly responsible for our financial futures,
ment returns to support human rights or environmental issues. we seek information, protection, and advice from Financial Advisors,
Other values that affect investment choices can include religion, the Internet, the government, and other investors. Some advice is
ideology, patriotism, and philanthropy. We want to feel good good and some isn’t. We remember and utilize some of it, while
about our investment decisions. the rest may be forgotten or dismissed.
We want fairness People buy and sell investments for myriad reasons. Some feel
We want a level playing field when we participate in sports, invest-they have a true advantage over other investors, and some have
ments, and every other aspect of our lives. Some of us, for exam- cognitive errors mislead them. Still others enjoy the thrill of trading.
ple, will not invest in companies that don’t share our values. Whatever the reason, it is important to distinguish truth from
We want to invest in our children and families cognitive errors and cognitive errors from wants. And it is critical to
We encourage our children to do well in school and we save for remember that investments are ultimately about your life beyond
their college expenses. Middle-class parents worry that they might money.
not have enough for their children’s education while wealthy par- What Investors Really Want will be published by McGraw-Hill in October
ents worry that their children may feel entitled to spend what they 2010. It is available by advance orders at Amazon, Barnes and Nobles, and
do not earn. Borders. Meir Statman is a member of Loring Ward’s Investment Committee.
Hog Wild for Commodities... continued from Page 1
machinery, account for an additional 11%.2 A portfolio consisting of broadly-diversified stocks in US and
Therefore, nearly 22% of the SP 500 exposure is indirectly related International markets (such as a typical Structured Investing port-
to commodities.2 These are the companies that mine the precious folio) may have a 15-30% indirect exposure to commodity sectors.
metals out of the ground, own the oil producing fields, or grow the So, if this sounds like the way you invest, the next time you hear in
agricultural products we all consume. the news about commodities, you can be confident that you may
The significance of commodity related companies remains elevated already have significant exposure to them.
1
when looking abroad. Most investors might not have realized that Bernanke Comment on Uncertainty Unsettles Market, Christine
almost 25% of the exposure in the SP Developed Broad Market Hauser, The New York Times, July 21, 2010.
2
Index is classified in the Energy or Industrial Materials sectors.2 Moringstar Direct, August 2010. Data as of 8/31/10.
Indices are unmanaged and do not reflect the payment of advisory fees and
We see even higher levels of exposure in Emerging Markets, as
other expenses associated with an investment in a mutual fund or separate
many of these countries are significantly engaged in commodity
account. Investors cannot directly invest in an index. Investing in foreign
extraction or production. The Energy sector represents 13% of the
securities may involve certain additional risks, including exchange rate fluc-
SP Emerging Broad Market Index while the Industrial Materials
tuations, less liquidity, greater volatility, different financial and accounting
sector accounts for another 20%, totaling 33% of that index.2 These
standards and political instability. Diversification does not assure a profit
include Brazilian and Russian Oil companies, gold mining compa-
and does not protect against loss in declining markets.
nies in South Africa and the coal companies of China.
NOMPOPM@? DIQ@NODI$ In An Unstructured World