HAP: Commodity Stocks Unite
by: Ron Rowland May 27, 2009
By Brandon Clay
With the dollar cratering and commodity prices climbing (almost) like it’s 2007, stock investors are showing more and more interest in the natural resource related sectors. Yes, it is now possible through various ETFs and ETNs to get direct exposure to many commodity markets, but stocks are more fun. Stocks have stories. And, at least sometimes, they go up even faster than the stuff they pull out of the ground.
The Van Eck MarketVectors RVE Hard Assets Producers ETF (HAP) is a collection of companies (stocks) that produce hard assets (commodities). HAP aims to mirror the Rogers - Van Eck Hard Assets Producers index - a one-year-old commodity index. Commodity maven Jim Rogers helped create this index, which incorporates renewable resources (solar, wind) with the usual commodities (energy, agriculture, base metals, etc.). For more information on HAP, check out Van Eck’s The Investment Case for Hard Assets. We like HAP for two reasons:
First, it fits well with our long-term market forecast of dollar weakness and ultimately inflation. Massive spending by both outgoing Bush and incoming Obama administrations is creating a tidal wave of monetary pressure on hard assets. This pushes commodities and the companies that produce them upward. Although HAP is down slightly in this tumultuous year, we’re looking toward the future - one that is fraught with danger and risk. If the U.S. continues to display banana republic tendencies, HAP will gather more steam.
A second reason we like HAP is its unique position in the market. HAP is a veritable “one-stop-shop” for hard asset producers. The portfolio includes companies like Archer Daniels Midland (ADM), BHP Billiton (BHP), John Deere (DE) and Monsanto (MON).
The nearest competitor to HAP is iShares S&P North American Natural Resources Sector ETF (IGE). Unfortunately, IGE is heavily weighted in energy stocks and has less agriculture exposure. What IGE does have is trading volume averaging around 372,000 shares a day, compared to 26,000 for HAP. This doesn’t mean HAP is illiquid, but it is still a good idea to use a limit order whenever you buy and sell.
The chart shows a strong uptrend forming for HAP. We expect commodity-producing companies to generate nicely positive returns in this troublesome environment. To invest for the long haul, go with HAP.
