Martchev: Mutually Speaking

06/30/2006 12:00 am EST

Focus:

Ivan Martchev

Editor, Vital Resource Investor and Global Viewpoints

While we’re firm believers that our mutual fund portfolio has to be managed with a long-term view, individual investors regularly lose sight of the big picture," notes Ivan Martchev. Here, he reaffirms some of his long-term positions.

"It’s natural for people to focus on the market’s short-term gyrations as their emotions alternate between greed and fear. But financial market history has clearly shown that the big money has been made only with a correct take on the long term.

"Should we ignore the current shakeout? Simply put, no. Traders like to say that the long term is made up of many short terms; and if you’re wrong on those, you’ll ultimately be wrong about the big picture. We don’t trade in the mutual fund portfolio, but we should be mindful about major market turning points that require a change of strategy.

"Our fund allocation has been defensive all along, with 40% stocks/25% bonds/15% gold/10% commodities/10% cash. Since this is a long-only portfolio, if an across-the-board correction in all major asset classes hits the tapeas we’ve seen during the past month the Portfolio will lose some value. But it’s likely to lose much less than the leading market averages due to our cautious allocation.

"Nothing has been spared in the selling. The better the performers were before the sell-off started, the worse they got hit after the top. Emerging markets, precious metals, and small stocks in the US are leading to the downside. The pullback in the overall commodity arena, however, has been mild.

"We continue to recommend PIMCO Commodity RealReturn Strategy (PCRDX)
which can be purchased only through a broker. While the digestion of the big gains since the rally in the commodity arena started in 2001 may last a year or more, the long-term fundamental story in the commodity market hasn’t changed. Supply shortages due to years of underinvestment will take much longer than five years to fix.

"In the early 1970s, after the big move in commodities, it took some time to digest the gains before the next big leg up unfolded in commodity prices. Given that the bull market started from all-time inflation-adjusted lows in commodity prices, it’s highly unlikely that the rally is over. A correction here is a buying opportunity.

"Still, it’s unlikely that the correction is over yet. Keep PIMCO Commodity RealReturn and use regular monthly investments to build a position. But if you plan any major new purchases, the September-October time frame is a better timing point.

"Another opportunity to play this that’s not part of the portfolio but goes well with our current portfolio holdings is the new iShares Silver Trust ETF (SLV
ASE) that trades at ten times the price of silver per ounce. It offers some near-term upside. The fund is a great opportunity for patient investors who have a two-year time frame. You can never buy at the lowest price, but you can tip the scales in your favor."

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