PRZOOM - /newswire/ -
Williamstown, MA, United States, 2006/04/26 - The stock market has been overwhelmed recently with talk about oil prices and energy stocks. However, all the oil-related hubbub has obscured the almost equally dramatic rise of commodity prices and stocks of commodity-related firms.
The stock market has been overwhelmed recently with talk about oil prices and energy stocks. That makes sense, given the precipitous rise of both items—but all the oil-related hubbub has obscured the almost equally dramatic rise of commodity prices and stocks of commodity-related firms. Fidelity Select Industrial Materials has surged on the back of those trends, rising from number 23 on the Sector Momentum Table as of mid-March to number four less than a month later. That run-up has been impressive—but the experts are divided about whether it’s likely to continue.
Friday’s most active stocks included: Lucent Technologies (NYSE: LU), Boston Scientific (NYSE: BSX), Time Warner (NYSE: TMX), iShares Japan Index Fund (AMEX: EWJ), Seagate Technology (NYSE: STX), iShare Russell 2000 Index (AMEX: IWM), and Energy Select SPDR (AMEX: XLE).
FSDPX invests in a range of stocks related to the production and distribution of raw materials. Those stocks include shares of aluminum producers; chemicals makers; miners of gold, silver, copper, zinc and other metals; construction aggregate firms; and even railroad operators. Such stocks have powered the fund to enormous gains during recent years. FSDPX gained an average of 33% per year during the three years through April 19 and more than 18% per year during the five years through that date—beating the annual returns of the S&P 500 by 17.3 and 15.9 percentage points, respectively. Put another way, an investor who put $10,000 into this fund on April 20, 2003, would have about $23,500 today. The fund’s gains have been especially dramatic recently. FSDPX gained more than 9% during the month through April 19 and more than 40% during the trailing year.
That rally has been largely due to a historic rise in commodity prices. The economic recovery in the U.S. and the rebound in emerging economies such as China and India have spurred powerful global economic growth during the past several years. The worldwide economy expanded 5.3% in 2004, its best performance in 30 years, and 4.8% in 2005. That growth has in turn stoked demand for the materials needed to build cars, factories, appliances, houses and other items, and such burgeoning demand has stretched supplies, reducing inventories of raw materials.
Worldwide growth shows no sign of slowing. In fact, the International Monetary Fund on April 19 increased its estimate for global economic expansion this year from 4.3% to 4.9%, citing the likelihood of faster-than-expected growth in China and elsewhere. That change led to a subsequent rally in commodity prices, as speculators bid up materials in anticipation of an even tighter supply-demand equation.
The Goldman Sachs Commodity Index, which tracks the prices of 24 commodities, gained 13% for the year through April 20 to hit a record high. Those gains included a 13% increase in copper between April 7 and April 20, bringing copper to an all-time-high. Zinc also hit a new record, while aluminum and nickel reached their highest prices since the late ’80s. Those run-ups led to big gains in stocks such as aluminum giant Alcoa (FSDPX’s number one holding as of March 31, up 18.6% during the 30 days through April 21) and copper, nickel and zinc miner Falconbridge holding at number three, up 13.8% for the trailing month).
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