VIP Bets on Basics

12/19/2003 12:00 am EST


Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and

At $1,999 a year, Doug Fabian’s VIP Investor is one of the more expensive and exclusive advisory services. It is meant for sophisticated, risk-oriented investors seeking above-average gains from a limited number of positions. Here’s a "taste" of this top-shelf advice.

"We're issuing a buy for Rydex Basic Materials (RYBIX ). This sector fund invests in companies engaged in the mining, manufacture, or sale of basic materials, such as lumber, steel, iron, aluminum, concrete, chemicals, and other basic building and manufacturing materials. Technically, this basic-materials fund meets our buying criteria because it is above its 50-day and 200-day moving averages, and has shown strong short-term momentum. The likelihood of continued strength into 2004 can be attributed to a number of factors.

"Remember, with basic materials, we're talking about, well, the basics when it comes to production, manufacturing, and building. News on housing starts certainly suggests high demand for lumber, metals, concrete, etc. Construction of new homes in the US rose about 4.5% in November, the highest level since the 1980s. Of course, that's just one home-grown factor that could boost basic materials prices. Another, of course, is directly related to the global recovery currently underway. Stronger economies abroad (even the emergence of a 250 million middle class in India) mean increased consumption, more demand and higher prices.

"The cost of shipping iron ore, copper, and all the raw materials—all the stuff that's in demand more than ever—has doubled in the last couple months. The Commodity Research Bureau's daily measure of raw industrials' prices (which excludes food, energy, and precious metals) are up 20% in the past year, 30% since this time two years ago. Though logically it seems that basic materials should continue to thrive, it is a very volatile sector fund, as is any position that's focused on one industry. We're looking for a short-term 8% to 10% gain in this fund position."

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