Commodities have been smashed in the last few years. After hitting a high in 2011, some of them declined by up to 80% but there is one professional who believes the future might be better for the commodities sector. Victor Sperandeo believes that commodities are a buy because even if they go down the downside is limited. Sperandeo said: “They [commodities prices] could go down another 10 percent, but up another 100 percent.” This means that the risk/reward ratio is 1/10 which every professional trader and investor should take.
Its normal to have some volatility but if your portfolio is diversified and you have just 10% allocation to commodities, even after such big decline for the sector, the other side of the portfolio: stocks, bonds will compensate the loss on the commodities portfolio. But if commodities go up, it will be good boost for everyone’s portfolio. Victor Sperandeo usually recommends a commodities allocation between 5% and 10% even when prices are dropping. “That’s OK, because you would have made a lot more money on the stocks and bonds that you owned,” he said.
Investors wonder how they can buy commodities but there are many ways. They can buy futures or they can buy etfs. Victor Sperandeo said that investors can just buy the iPath Bloomberg Commodity exchange-traded note (DJP) which is a commodities etf which is diversified among agriculture, energy and metals. Another etf product which is diversified among many commodities is the iShares S&P GSCI Commodity-Indexed Trust (GSG).
The problem with this one is that it has more exposure to energy which is currently not performing well and is too political in nature. Of course this problem could become a plus in case the energy markets hit a bottom.
Victor Sperandeo is a renowned trader and excellent financial commentator based in the USA. Sperandeo has over 45 successful years on Wall Street in trading both independently with his own money and on behalf of big names and other notable investors such as Leon Cooperman and George Soros. He is widely known as “Trader Vic” in Wall Street and Victor among his friends and acquaintances. Sperandeo was given that nickname because of his intellectual ability and skills to trade profitable on the Wall Street.
Victor Sperandeo is the founder, CEO and President of the (AFT), or Alpha Financial Technologies LLC. He is also a founding partner of EAM Partners L.P., and is the CEO and President of the EAM Corporation.
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