Stanford University researchers looked at if and how the number of stocks in a portfolio reduces risk. Their research showed having a two-stock portfolio significantly reduced risk.
A real estate fund would be our top choice for portfolio diversification using a sector fund, even though commodity funds have gained quite a bit of attention. These funds do not generally buy commodities directly, but rather buy derivatives that give their portfolios exposure to fluctuations in the price of commodities such as oil, wheat, metals, and hogs.
Rolling Period Returns
Before we discuss the U.S., consider Spain, which annually spends $11 billion a year (~ 1% of its GDP) on green technology. By the end of this century (2099), and based on current Spanish commitments, the cumulative effect of all of this spending will have delayed the impact of global warming by 61 hours (source: Yale University).
Since its August 22, 2011 peak, gold returned -30% as of the beginning of September 2013. The last calendar year gold prices fell was 2000. For the first 10 months of 2013, gold was down 22%. One observer points out, “Gold is somewhat of a chameleon of an asset because investors tend to value it as a function of something else, and it’s sometimes tough to tell what that is.” Part of this is because no one really knows how to value gold. Its price is driven by investor perceptions of allure and scarcity.
Recent developments in chemistry show there is a new way to convert carbon dioxide into methanol. Methanol is mostly used by industry but could possibly be used as fuel for auto and truck transportation. If used for vehicle transportation, methanol could make it profitable for America and the rest of the world to reduce carbon-dioxide emissions.
A 2013 report from IHS Global Insight estimates oil and natural gas fracking added an average of $1,200 to U.S. household income in 2012. Based on present trends, IHS estimates the figure will be $2,000 a year by 2015 and $3,500 by 2025.
The fracking industry added $74 billion in 2012 federal and state tax payments; the amount is projected to rise to $138 billion by 2025. The fracking industry increased economic growth by $283 billion in 2012 and is expected to add $533 billion o U.S. GDP by 2025.
A 2013 study by a group led by Hal Sirkin, who analyzes economic trends at the Boston Consulting Group (BCG), is seeing an acceleration of U.S. and other countries setting up their manufacturing businesses in the U.S. The major catalysts have been: rising labor costs in China and lower energy costs from the shale boom. The losers from this trend are likely to be Japan and Europe. For example, the wholesale price of natural gas in the U.S. has dropped by 50% while natural gas prices in Europe and Japan are 2.6 to 3.8 times higher than in the U.S.
The table below shows oil production for the 2012 calendar year. From the end of 2011 to the end of 2012, the U.S. had the greatest increase in its production (14%), followed by Iraq (11%), and Kuwait (9%). The U.S. pumps about one out of every 10 barrels of oil worldwide. According to WSJ (June 2013), the “techniques that have unleashed so much crude in the U.S. haven’t yet had an impact overseas.” In 2012, world consumption grew by 0.9%; Europe and North America used less oil, while the rest of the world, led by China, used more.
North America has added ~ 1.8 million barrels of daily oil production in the past two years. The International Energy Agency in Paris estimates that North America will add an additional 3.9 million barrels of daily output by 2018.