Rough Rice Redux

George Hosfield, CFA, is Ferguson Wellman's chief investment officer and chairs the firm's Investment Policy Committee.

In our second quarter Market Letter of 2008 titled "Rough Rice," Dean Dordevic outlined the base case for a secular increase in "soft" commodities (wheat, rice, etc.). The root cause, much like the case for the supply and demand equation for oil, has been booming growth in the developing world. Factors underpinning the demand include: population growth, urbanization, rising incomes and changing diets. Since that time, this long-term thesis has influenced our client portfolios through sector and industry weightings as well as stock selection.

In July of last year, we broadened our exposure to this cyclical theme through an initial position in our Tactical Asset category via a Gold ETF (See our Capital Markets Update of July 6 titled, "Bonfire of the Currencies"). Though the primary basis of this trade was to provide a partial hedge against currency debasement and not a response to inflation fears, it nonetheless was our first direct commodity investment.

Though domestic headline inflation continues to be quite contained, fueled by continued demand from the emerging economies, prices across a broad array of "hard" (metals) and "soft" (agricultural) commodities are continuing to rise. With this in view, we are in the process of adding two commodity vehicles to our Tactical Asset allocation. Specifically, we are employing the Goldman Sachs Commodity Strategy Fund and the iPath Dow Jones–UBS Commodity Index ETN. We believe this is an effective mix of both hard and soft commodities that will perform well as this theme continues to unfold. Combined with the aforementioned Gold ETF, the allocation of our Tactical Assets would be distributed as follows:

As always, please do not hesitate to contact me or your portfolio manager with any questions or comments. 

Best regards, 

George W. Hosfield, CFA 
Chief Investment Officer 

The information provided herein is for educational purposes only and should not be construed as investment advice or as an offer or solicitation. Not all securities are suitable investments for all investors; therefore, Ferguson Wellman Capital Management will not necessarily implement any particular strategies discussed herein for all clients. We recommend that you discuss questions regarding your individual portfolio and investment strategies with your portfolio manager.

Best regards, 


George W. Hosfield
CFA Chief Investment Officer 


The information provided herein is for educational purposes only and should not be construed as investment advice or as an offer or solicitation. Not all securities are suitable investments for all investors; therefore, Ferguson Wellman Capital Management will not necessarily implement any particular strategies discussed herein for all clients. We recommend that you discuss questions regarding your individual portfolio and investment strategies with your portfolio manager.