A Material Opportunity

The iShares CDN Materials Sector Index Fund (XMA) mimics the return of the S&P/TSX Capped Materials Index through investments in companies that make up that index. XMA is comprised of 50 companies, however, a word of caution is that roughly 50% of the makeup is in gold related companies. Some of the top names include Barrick Gold Corp (15.8%), Potash Corp of Saskatchewan (13.6%), GoldCorp Inc (11.53%), Teck resources LTD (7.34%), Kinross Gold Corp (5.23%) and Agrium (4.10%).

Over the last year XMA has had a pretty solid trend up with a combination of rallies and reversals. On Jan 30, 2009 XMA closed the day at $13.45 and on January 29, 2010 XMA closed at $16.47. There hasn’t been a lot of gain over that last quarter measuring from October 30, 2009 to January 29, 2010. On October 30, 2009 XMA closed at $16.30. Despite relative strength, MACD and shorter term moving averages being bearish, this could be setting up for a good entry point. XMA just bounced off its 200 day moving average so it may have found its support level.

From a seasonal standpoint, February to May is generally positive for metals and mining. Brooke Thackray’s research supports this ascertation in which he has coined “Metals and Mining – M&Ms Don’t Melt In Your Portfolio”. He states in his article “Metals, mining to shine” January 28, 2010 in Globeinvestor “The metals and mining sector tends to do well at the beginning of the year as firms tend to place more orders for base metals to meet any increases in their annual forecast, winter improves access to many mines in the northern hemisphere…” A word of caution is that XMA may not be the best choice to play this seasonality theme because of its heavy makeup in gold companies. That being said Marc Farber, Editor & Publisher of Gloom, Doom and Boom Report points out that “Gold has outperformed equities and the U.S. dollar since the year 2000, and this outperformance may continue. If I am correct about the United States facing significant inflation in the future, then gold represents the obvious investment choice.” He is also bullish on commodities as a whole over the long term.

We have two events in Kelowna in the month of February. The first is “Rallies & Reversals in Real Estate, Buy, Hold, Sell” featuring Cameron Muir, Chief Economist of the BC Real Estate Association. This session takes place Thursday Feb 4th at 2pm.
The second session is on Feb 11th at 7:30am. The topic is “Rallies & Reversals in the Market, 2010 Outlook”, featuring Gareth Watson, Canadian Equities Director, Scotia Mcleod.