Looking under the hood

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Looking under the hood

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Published Date: 2021-03-02 | Source: INCE|Connect | Author: Lester Davids | Peet Serfontein | Mark Weetman | Unum Research

Looking under the hood

To end off our "trading the commodity super-cycle" Share360 analysis, we provide insight into our Unum holdings which you might want to replicate in your own portfolio.

We want to demonstrate how we have implemented some of our commodity trade ideas in the various Unum portfolios, including our local Personal Share Portfolio (PSP), offshore PSP and the Unum TFSA. Hopefully, this will give you a few commodity investment ideas.

But first a quick commodity update ....


According to our Global Risk Radar, in the short and ultra short-term, all commodities look weak based on Lester's technical analysis. However, for the medium to longer term investor, prospects look better, with the super cycle still in place.




Gold remains on the back foot!



Gold records its biggest monthly fall since November 2016, off around 6%, currently trading $1,746.

Gold remains under pressure on the back of global rising interest rates, the re-inflation trade. The commodity has continued to trend lower,
making lower lows and lower highs, the pre-dominant downward trend reflects strong selling pressure.

As highlighted in last weeks article, the weekly chart reflects this bear trend with the RSI making new multi-year lows, reflective of the
weakness.


Peet has a continuation of the downward move in the ultra short-term, with a relief bounce for the rest of the quarter.

The Rand/Gold Price looks marginally better




There are two positive factors which have caught Lester attention:
"Firstly, the daily chart signals a positive divergence as per the RSI (i.e. price making lower lows while the indicator makes a higher low and secondly the weekly chart sees the rand gold price trading at it's 50% fibonacci retracement. Small rebound due?)



Platinum retreating

Our thinking at the top of last week was that while the commodity was strong on a long term basis, the short to medium term trajectory may see more of a consolidation phase, going as far as a moderate retracement. From $1270, Platinum has started to develop lower highs and lower lows, with the last close being $1187, on the 21-day exponential moving average (a minor support zone) but having breached the short-term top formation in place since 11-February. Supporting the bearish view is the MACD which has developed a bearish cross.

"Bottom Line: Further weakness expected. Possibly too early for tactical/ultra short term buy/long."


Local holdings:

We currently have almost 30% allocated to resources, preferring to hold a diversified spread of resource counters with no more than 5% allocated to any single stock - this avoids any idiosyncratic, stock specific risk.


Our Tax Free Saving account (TFSA) also has a high exposure to resources with almost 24.5% (on a look-through basis) and 5% directly invested in the local gold ETF (GLD).

Add some offshore variety

Variety is the spice of life, and most offshore trading platforms allow you access to a several interesting resource investments.

We currently hold the following in our Unum Offshore portfolio share portfolio (PSP):

Global X Lithium & Battery Tech ETF (ARCX:LIT)
VanEck Vectors Gold Miners ETF (ARCX:GDX) an
iShares MSCI Global Silver and Metals Miners ETF (BATS:SLVP)

Bonus trade idea - trade the ZAR gold bounce!


With a potential basing in the ZAR gold price, we are looking for a speculative, counter trend move in the gold price - remember gold is still in a downward leg, so we are going against the established trend! Any rand weakness will also be supportive of the trade.


Short-term Rand weakness will also affect the trade outcomes.

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