John Murphy: Commodity Values

10/24/2003 12:00 am EST

Focus:

John Murphy

Head Market Analyst, Stockcharts.com

"For the first time in 20 years, commodities as an asset class are outperforming both bonds and stocks," says technical expert John Murphy, chief technical analyst of stockcharts.com. "I believe this is a trend that will continue for sometime." Here he suggests some mutual funds in the commodity area that may be poised to benefit.

"There are now some mutual funds that enable investors to participate in a bull market in commodities without actually having to buy the individual commodities themselves. An article in Barron's last week talked about how pension funds were finally discovering the profit potential in commodities. It listed three mutual funds that take advantage of commodity trends: the Oppenheimer Real Asset Fund (QRAAX), the Pimco Commodity Real Return Fund (PCRAX), and the Van Eck Global Hard Assets Fund (GHAAX ). We note that all three mutual funds are relatively new and don't have a lot of price history. Given the new popularity of commodities, however, they may be worth taking a look at.

"Meanwhile, industrial metals prices continue to set new yearly highs, even as precious metals are correcting. While precious metals are more closely related to trends in the US dollar, industrial metals are more closely tied to the direction of the global economy and direction of long-term interest rates. Strength in industrial commodities also explains why basic material stocks and economically sensitive cyclical stocks have been so strong. Readers have asked which of the Fidelity funds were closely tied to rising commodity prices. Actually, there are several Fidelity funds tied to commodities including gold, energy, natural gas, natural resources, and paper and forest products. Each of those, however, covers only a portion of the commodity field. In my opinion, the Fidelity Select Industrial Materials (FSDPX) may be the best proxy for commodities as an asset class. The fund recently broke out to a new high. It looks a little over-extended at present, but its trend is clearly up."

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