Picking up on Scott"s Comment re: "gathering a diversified portfolio of real assets."

bee

I have reservations chasing any singular theme...the most recent being gold/silver. I understand its place in a diversified portfolio but my reason for starting this thread was to formulate ideas on creating a well diversified portfolio of "real assets". What would these be and in what percentage would one hold them long term.

Real Assets to me include:
Precious Metals...Gold, Silver, Platinum, Palladium
Natural Resources/ Commodities...Food, Fertilizers, Fiber, Metals, Minerals, Energy (Oil, NG, coal, etc,)
REITs / MLP / Utilities...REITS, Argi-businesses, Poles, Pipes, dams, Towers, Cables, Wires

Maybe also,

Companies that manufacture "things"...verses provide services...
Drugs & Medical Device/Equipment

Precious Metals:
rono has done a great job over the years of educating me on the importance of gold and silver well beyond the ordinary choices. Hopefully he will be kind enough to continue. Personally, my exposure to these metals come in the form of owning gold/silver within PRPFX = Permanent Portfolio. I also have PM mining exposure using USAGX = USAA Preciuos Metals and Mining and VGPMX = Vanguard Precious Metals. Also, I would assume I have smaller amounts of exposure of PM in diversified funds such as VWO = Vanguard Emerging Markets since much of the mining operations are located in these emerging countries. My goal is to maintain a 10% weighting in precious metals.

Natural Resources / Commodities:
Scott and others have been very helpful in providing commentary on these choices. I must admit I need to better understand all of the choices in this space as well as its place in my portfolio. I have exposure to this space through PCRDX = PIMCO Commodity Real Return Strategy D class. My understanding is that this fund purchases derivatives as well as preferred stock. Derivatives are buying futures in an asset verses owning the real asset so I am interested in clarifying in my mind the PCRDX's place in the commodities portion of my portfolio. Individual commodity stocks seem riskier than a collection of the stocks in a mutual fund or ETF. I also have a investments in:

VIS = Vanguard Industrial Materials
VDE = Vanguard Energy

Maybe Scott or someone else could provide a primer on this space. I would very much appreciate it. Again, 10% weighting in this area is my goal.

REITs / MLP / Utilities:
Here I own VNQ = Vanguard REIT, GASFX = FBR Gas Utilities, VOX = Telecom, MATFX = Mathews Asia Tech, PRMTX = Media and Tech, CSRSX = Cohen & Steers Realty Shares
This space seems plagued by bad news both inside and outside. A big driver of our economy was real estate development. It provides employment, consumer spending, manufacturing, as well as bank financing. Our balance sheet recession is slow to unwind and full of volatility (bad news) and real estate react directly to these dynamics. I wouldn't call this investment space dead money but it feels like it is on life support at times. Low interest rates should soak up some housing inventory but a home is no longer the "fake" wealth multiplier it once was. I am looking at REITS that manage rental property, retirement communities as investments that provide present income and future growth. Another 10% here as well

Here's and interesting chart on the risk/reward of holding differing allocations of real assets on the last decade:

http://www.principalfunds.com/investor/promo/dra/effect.html?WT.mc_id=dra_micro_effects

That's enough for now...your comments very much appreciated.

bee

David_Snowball

Hi, bee!

Sometimes I try to answer such questions (e.g., "where should a 50-year-old be invested?") by looking at the portfolio choices made by professionals. So I'd check the range of asset allocations in target date 2030 funds to see what I might want to consider.

To answer your question, you might want to look at the portfolio of a secret mutual fund, T. Rowe Price Real Assets (PRAFX). You've likely never heard of it because only other T. Rowe Price funds may invest in it. It's designed to give those funds exposure to real or "hard" asset plays, generally through the stock of companies involved in such sectors. While neither Morningstar nor Price publish information on the fund (so far as I can tell), the documents are all on file with the SEC.

The most recent portfolio is http://www.sec.gov/Archives/edgar/data/1486048/000148604811000007/nqraf.htm

Retail funds whose assets allocations might interest you are Van Eck Global Hard Assets (GHAAX) and Fidelity Strategic Real Return (FSRRX). Of the two, Van Eck has the longer, strong record.

For what it's worth,

David

bee

Reply to @David_Snowball:

Thanks David,

I noticed the link to the SEC ended with a period which should be edited out to allow it to viewed.

Thanks for your comments...I love uncovering secrets!

bee

David_Snowball

Reply to @bee: Thanks for the heads up, bee. I deleted the period.

Fidelity also runs a series of secret funds, open only to Fidelity funds. I'm often more struck by those options (TRP Short Term Income is more intriguing than TRP Short Term Bond, for example) than by the public ones, but that might just be the appeal of "forbidden fruit."

bee

Reply to @David_Snowball:

Being a TRP investor I put a call into TRP with regard to PRAFX...interesting response. Thanks for making my day. We always want what we can't have. I like Fidelity's Strategic Real Return's performance thus far this year. Thanks

Here's a screen of potential ETFs in the commodity sector...some I'm sure are not high volume.

http://etfdb.com/etfdb-category/commodity-producers-equities/

bee

scott

I think the whole thing becomes trying to "think outside the box" and in the manner that investing doesn't have to just be the traditional "bonds and stocks", "hard assets" don't have to be just commodities or commodity producers. I like Brookfield Infrastructure, which is a collection of varied assets around the globe - everything from rail in Australia to power distribution in various countries to ports to timber, plus it pays about 5.7% and the parent company is the giant Brookfield Asset Management. I really like MLPs, but don't want to be purely in energy-related names; there are some other non-energy ones that are worth looking at, such as the Fertilizer ones. Several MLPs were actually doing quite well throughout much of yesterday's 500+ point decline.

I do think that REITs represent a hard asset choice, but I think it really is tough to be as specific as I want to be about it. I like prime real estate in high-end locations that has a high replacement cost. Again, I look at Brookfield and Brookfield Office Properties (BPO). Hard-to-replace properties in ultra-prime locations. I like logistics, but I don't know of many examples in this country - in Singapore, there's the Mapletree Logistics Trust (I believe there's a pink sheet version, but it barely ever trades.) I DO NOT LIKE RETAIL. Even if things really come back, I think retail is overbuilt in this country and I think technology may lead to further moves away from B & M retailers or specific sectors (Circuit City is gone and Best Buy is still not performing well) may go away. Again, I do not like retail REITs and do not want anything to do with them. The only unique little piece of a retail REIT that I would like are the prime outlets (outlet malls that are a collection of more mid-to-high end stores) managed by Simon Property Group - I think these are unique and represent appealing values. However, I wouldn't want anything to do with SPG as a whole at these levels.

I do think that apartment REITs will continue to do well if things continue at this rate/along this path. Furthermore, many REITs have run quite a bit (although I'm sure they've come down recently.) REIT Preferreds may also be an option. The hotel REITs are sorta interesting in theory, but a number of them really got demolished in 2008 because they completely mistimed the market. New hotel REIT Pebblebrook (PEB) is interesting because it's largely about buying high-end properties at distressed rates, but if this is another 2008, it doesn't matter, it's just going to get obliterated (it owns a great selection of hotels, though, and on its website, there are specific factsheets for each property, in terms of what discount it was bought at, etc.)

Principal Global Dividend (PGDCX) holds some in MLPs and REITs.

Pimco Commodity RR invests in commodity derivatives, but actively manages the collateral (TIPS, but also other things.)

Pimco Commodity RR is a good position for a commodity derivatives fund. The fund that I particularly like, Highbridge Dynamic Commodity (HDCCX) is unfortunately now closed (and I wish I wouldn't have sold it entirely.) Currently, I have PCRRX, DBA, CFD and a little RYLFX.

Additionally, as I noted in the other thread, I do like Dupont because of its exposure to agriculture, as well as food ingredients/enzymes. However, as I mentioned, if this is another 2008, you don't want to be in it. I particularly like the Flavors section - companies like Givaudan (GVDNY.PK), Senisent (SXT) and part of Dupont (DD), as well as a few others, such as Novozymes. Sensient is particularly interesting - they had a good quarter and are trading at a reasonable valuation. However, like anything else - DO YOUR RESEARCH. This is an area that I think people don't think about and I think it'll be increasingly important in upcoming years because of science trying to find ways to create packaged food without using so much salt and other discoveries - and the "science of food" (and also household products to some degree) is what you're really seeing these companies be involved in and I think that will be of increasing importance in the next decade (and likely behind Dupont's purchase of Danisco.) I just don't think that many people think about how the flavor of their ice cream was created or how the color of their drink was made, but these companies do well.

I do like Archer Daniels Midland at these levels for a little bit, as it's just not done very well and I think it's not going anywhere.

I do like more unusual commodity plays, including both Noble and Glencore. I picked up Glencore (a litttleee bit) in the last week or so, and as I noted in the other thread, I find it a fascinating company (and the scale of it is pretty remarkable), but it does have a controversial past. Noble I owned last year and sold early this year or so - at these levels (about $1.25) I think I may look at it again. However, both are volatile in the extreme, so are purely for a little bit of speculation. Same with Sprott Resource (SCPZF.PK.) Noble, which is an Asian-based commodity trading house, has a map of assets on its website, which is a particularly impressive collection of ports and other facilities around the globe. Same with Glencore, which has a pretty massive amount of owned/leased farmland. Click on the points on the map on the link below to see Noble's assets.
http://www.thisisnoble.com/index.php?option=com_content&view=article&id=277&Itemid=325&lang=en

In terms of healthcare, I like(d) Teva, but sold at $49 not that long ago and I'm stunned to see it's now $10 less. It's just not doing particularly well and I think I'll keep to funds regarding health care.

%'s and particular allocations are going to be different based on risk tolerance and distance to retirement.

I think this is the big question: you aren't going to earn anything on your money for the next couple of years. Inflation is not going to be zero (and I definitely think it will be higher than others think it will be.) Growth is certainly not going to be high. So, what do you do in that environment.

bee

Reply to @scott:

Thanks Scott...lots to digest...got any salt?

Your optimistic commentaries in the unusual space (out of the box as you put it) reminds me of the kid who upon receiving a pile of manure on Christmas day proceeded to fling it about the room. Digging deeper and deeper into the pile he turn back to all the family onlookers and he yelled,

"Come on and help, there must be a horse in here somewhere."

My hope is that the horse is still in there somewhere and he is not ready for the glue factory.

Thanks again for your input with regard to this illusive space.

bee

BWG

Reply to @scott:
Scott and others... what is your take on farmland stocks like JG Boswell (BWEL.pk), Limoneira (LMNR), Cresud (CRESY) etc? Some (particularly JG Boswell) are thinly traded. As always, please do your due diligence.

Sorry for the double post.

scott

Reply to @BWG: JG Boswell is interesting, but thinly traded and $700 a share. I think I've gotten a little concerned with this market and holding things that trade sort of "once in a while." I like Cresud on the cover and keep it on the list of things to look into, but I haven't done deeper research into it - it is interesting not far off 52 week lows, though. I do like Sprott Resources with its major investment in Canadian farmland and South American farmland, as well as Sprott management. The other one that I think is of interest but has not done all that well (it's below the offering price now) is the Soros-backed Adecoagro (AGRO), which is a very diversified South American farmland operation.

I owned Sprott Resources, but now own a little Glencore (GLCNF.PK), which I think is a fascinating company, but does have a controversial past. The company owns/leases 270,000 hectares of farmland.
http://en.wikipedia.org/wiki/Glencore
http://www.glencore.com/agriculture.php

CathyG

Reply to @David_Snowball: You listing of PRAFX reminded me of a question I've been meaning to ask. What sites show which mutual funds invest in a specific investment (or other fund like PRAFX), where I can search by the investment (or fund) I want to find mutual funds that have good percentages of). I'm sure I read the answer some time ago in FundAlarm, but can't find the list of sites.

steppinrazor

Bee,

I was wondering, what was your "interesting" reponse from TRP regarding PRAFX?

David_Snowball

Reply to @CathyG: Hmmm . . . just to be sure I understand. You'd like to find a site that tells you, for example, which funds have the most invested in Apple?

If so, Morningstar offers a wealth of information (free) on stock ownership. Type a stock symbol and click on the "shareholders" tab to find out which funds own the most shares, which have the greatest concentration of that stock in their portfolios, which were (as of their last portfolio report) buying, and so on.

I believe that Ted uses Lion's Share to access such information, but I've never tried tracking the site down.

If I've misunderstand the question, let me know where I went astray and I'll try again.

As ever, David

bee

Reply to @steppinrazor:

Hey Step,

Initially the phone was transferred numerous times since it was actually hard for the TRP phone jockeys to find any information on it. They we more and more curious themselves about the fund and finally found a "secret fund expert" who provided me and the "phone specialists" with a conference call where by I was able to ask a few questions after I was asked,

"So, why are you interested in this fund in the first place?"

To make a long story longer the expert pointed out that the fund was an institutional only fund and that individuals could not invest directly in it.

It does seem to be part of the Lifecycle retirement funds as David had mentioned.

bee

CathyG

Reply to @David_Snowball: You're right, I wasn't very clear. I do know that M* shows Shareholders in pure stocks. But I'm trying to find a site that shows the same type of information for ETFs and mutual funds -one being your example of PRAFX. In this case, how do I find out which T. Rowe funds hold this fund?

scott

Not sure which T Rowe funds hold the fund, but the fund has a mix of real estate stocks and natural resources stocks. I'd rather suggest for those closer to retirement to hold permanent portfolio, which has both as a portion of assets, as well as swiss francs, gold and silver. That would be a more "low key" real assets fund.