Natural resources has had a good run with exchange traded funds (ETFs) this year. But is it time to use caution? When any sector gets a lot of new money it can cause price inflation. Jesse Emspak for Investor’s Business Daily reports that this sector can be vulnerable when faced with increased market volatility and uncertainty in supply.
One example is PowerShares Dynamic Oil And Gas Services (PXJ), which has run up 37.5% year-to-date. However, it has dropped from its October high and is skimming its 200-day moving average. Emerging economies, such as China and India can increase the demand for oil, but there are mixed predictions about demand for next year.
Investing in commodities isn’t without risk, especially in these uncertain times. If adding them to your portfolio makes sense, keep in mind the ETFs covering a narrower slice of the market are more at risk for fluctuations. Make sure you know your risk tolerance and set up an exit strategy.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.