1. Increase your equity-equivalent exposure through commodity stocks, emphasizing the mining stocks at the expense of agricultural and oil & gas stocks.
2. Canadian investors who use TSX-linked equity products should, nevertheless, increase their total exposure to commodity equities to reflect the better global outlook.
3. American investors who use S&P-linked products to participate in a strengthening global outlook are underweight commodity exposure and should adjust exposure upward accordingly.
4. Big Oil stocks are a blend of commodity companies and industrial companies. They dominate the raw materials section of the S&P, giving investors a false sense they have good commodity exposure. Underweight integrated oil companies in commodity portfolios
5. The accounting wheeze that equates six units of natgas to one of crude oil makes Big Oil in general and most oil and gas producers look like better commodityinvestments than their true product mix would justify. Overweight oil production and underweight gas production.
6. The oil sands companies are moving from open pit mining to Steam- Assisted Gravity Drainage (SAGD) production methods, using natgas as fuel for melting the bitumen. Result: they are long oil and short natgas, which is a splendid strategy for investors. This week’s Sinopec purchase of Conoco Phillips’ 9% interest in Syncrude confirms the strategic value of that treasure trove that fashionable Greens love to deride. Continue to overweight the oil sands companies.
7. The combined strength of the KRE and BKX is more than mildly reassuring. We believe investors should feel quite safe in their equity commitments as long as that relative strength holds. The test may come when Bernanke withdraws the heroin, but most economists think that remains far off. This is a good time to emphasize cyclical equities within US portfolios—and to add to commodity exposure.
8. Within agricultural stock portfolios, emphasize the equipment and logistics companies. Reduce exposure modestly to grain production, and increase it to production of meat, poultry, pork and beef.
9. Gold and silver have held up well in the face of strength in the dollar. Remain overweighted in the precious metals. 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.
10. Within global bond portfolios, continue to emphasize Canadian bonds. Within US bond portfolios, emphasize inflation-hedged TIPs. Within retail portfolios holding high exposure to cyclical stocks, hold some long-duration bonds as a hedge against a double-dip after the heroin is withdrawn.
Coxe Advisors LLP.
190 South LaSalle Street, 4th Floor
Chicago, Illinois USA 60603
Distributed by BMO Capital Markets