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Hot Coffee Anyone?
A PERFECT STORM OF RISING CONSUMPTION
and a bad harvest year has set coffee
The iPath DJ-UBS Coffee ETN
(JO) has jumped around 72% since
the beginning of the year, making it
among the top performing single commodity ETPs.
Consumption of coffee, especially
in emerging markets, is expected to
grow twice as fast compared to devel-
oped countries like Italy and the U.S.,
according to the International Coffee
Organization. Big coffee exporting
countries like Brazil, Colombia and
Vietnam are keeping more of their coffee
crop at home for local residents. And
large coffee chains have taken notice.
Starbucks opened its first store in
Bogota, Colombia, in July and plans
to expand with 50 more stores over
the next five years. Euromonitor estimates that Colombians will buy a
record 72,500 tons of coffee this year.
Just as coffee demand is taking off,
a severe drought in Brazil and a fungal
disease in Central America have damaged crops. As a result, bagged coffee
prices at U.S. grocery stores have increased between 8–9%.
Coffee’s sizzling performance this year
is a stark contrast to a string of consecutive yearly losses that began in 2011.
Growth Stocks Beating Value
DISAGREEMENT IS THE ONLY THING VALUE
and growth equity investors can ever
seemingly agree about. And thus far
this year, it’s investors who favor high-priced momentum styled growth stocks
that are winning the argument.
Since the start of the year through
early September, the Guggenheim
S&P 500 Pure Growth ETF (RPG)
has gained 13.89% versus a gain of
11.77% for the Guggenheim S&P 500
Pure Value ETF (RPV).
RPG screens S&P 500 growth stocks
based upon sales and earnings growth
along with price momentum. Among
RPG’s top holdings are Keurig Green
Mountain, Southwest Airlines and Netflix.
“Many market participants have a
clear preference for risky growth stocks,”
said Feifei Li, Ph.D., and Philip Law-
ton, Ph.D., CFA, in a research piece
titled “True Grit: The Durable Low
Volatility Effect.” “Indeed, their par-
tiality is so strong that, in addition to
rejecting value stocks, they often drive
the price of growth stocks to unrealis-
tically high levels.”
The criteria RPV uses for selecting
value stocks with the S&P 500 include
a company’s price/book and sales/book
ratios along with price/earnings ratio.
Top holdings inside RPV include Alcoa,
Berkshire Hathaway and WellPoint.
Like many investors with a value
tilt, Li and Lawton argue that low-priced stocks, which are less volatile,
outperform the more volatile high-priced stocks.
If momentum investors are indeed
overpaying for prospective future
growth, the stock market has yet to
penalize them for that gutsy choice.