Iron ore hottest sector, but gold and silver also still favored - Coxe

Respected investment advisor, Don Coxe, advocates well-chosen commodity stocks with iron ore top of his list, then precious metals

Author: Dorothy Kosich
Posted: Monday , 19 Apr 2010

RENO, NV -

Coxe Advisors Chairman Don Coxe is rebalancing his recommended asset mix for U.S. pension funds and sector weightings for commodity stocks. A new portfolio will be introduced for Canadian pension funds and a new category of "commodities and commodity equities" for all pension funds.

In his most recent analysis, "Basic Points, A Slow Boat to China," Coxe said, "What we are doing now is expanding the cyclical component of our investment portfolio strategy with the 12% allocation to commodities and commodity stocks."

Coxe believes "well-chosen commodity stocks will solidly outperform the traditional commodity funds-most important and obviously-as long as contangos are in force for key commodities such as oil."

"When one owns the shares of well-managed commodity producers with unhedged reserves in the ground in politically-secure areas of the world, one benefits more from a sustained commodity price increase than passive owners of that commodity."

Coxe suggested the commodity bull market in this decade "will be driven by (1) industrial demand for raw materials; (2) sustained demand for petroleum; (3) continued protein upgrades in diets in emerging and emergent economic, and (4) greater reliance on precious metals as stores of value-not necessarily as hedges against actual inflation."

And, the hottest of all major commodities is the most basic of all metals-iron ore, Coxe noted. "When we came into the business we got to know a veteran geologist who gave us one of the most useful maxims we ever learned: ‘An iron ore deposit is like a belly button-everybody has one.'"

The decision to make the transition from annual contract prices set in negotiations to quarterly preferences set with reference to the spot market is a "momentous event," in Coxe's opinion.

"That a product never traded on any exchange is the new Wonder of the World argues against the conspiracy theorists who dismiss soaring prices in metals traded on public exchanges, such as copper, nickel, zinc and aluminum," he remarked. "All those investigations into price manipulations through futures markets should soon become irrelevant."

Coxe recommended "clients write tickets on slow boats to China," noting Stage #2 of the Great Commodity Bull Market has begun as China and India remain stronger exporters but become even greater commodity importers.

Finally, in his investment recommendations, Coxe advised investors to remain overweighted in precious metals because "gold and silver have held up well in the face of strength in the dollar."

"The royalty and streaming stocks offer special attractions because relatively few investors understand the companies' beautiful business models and the excellent execution of those models by shrewd managements," Coxe concluded.