Diversification Tips From Marc Faber

by: Roger Nusbaum

Marc Faber was on Asia Squawkbox Monday morning for much of the show and as he often does he had some interesting things to say. One thing he said several times, which most people don't often think of when they think of him, is that he thinks people should be diversified. It is not surprising that he thinks this but it does not get much attention relative to the other things he talks about.

He answered several emails through the appearance including one about asset allocation. He said that investors should diversify with real estate, farmland, equities and precious metals. In trying to find different ways to build a portfolio around his ideas I would not discount the off the cuff nature of his comments but the asset classes he mentioned are a combination of old standbys and popular "new" exposures.

If I had to buy one type of REIT (we don't own any) I would probably look at college apartment REITs. You can look at American Campus Communities (NYSE:ACC) and easily find the few other names in this niche but again we have no exposure. There are also several companies considering converting to REIT status even though the underlying businesses are not real estate in the way you would typically expect. There are a slew of REIT ETFs, if I wanted to own this space I would prefer an individual issue but if you have to go the ETF route I would avoid anything with China in.

For the farmland segment it would be impractical for the typical 50 year old who is doing reasonably well and had $300,000-$500,000 in a 401k to go buy a farm (it might also be impractical for someone with millions saved) but there are some exchange traded proxies. The closest ETF is probably the new IndexIQ Global Agribusiness Small Cap Fund (NYSEARCA:CROP). The large cap ETFs in this space like PAGG, CRBA and client holding MOO don't really have exposure to farms. There are various plantation stocks from Asia (a couple of which trade in London), there a couple of companies listed in Sweden with farms in Russia, there are big chemical companies like Yara (OTCPK:YARIY) or Israel Chemical (OTCPK:ISCHY).

One new stock in the space that is easily accessed is Adecoagro (NYSE:AGRO) which listed on the NYSE a few weeks ago. It has operations in Argentina, Brazil and Uruguay, it owns actual farms and it also processes food at mills. George Soros sold a bunch of shares into the IPO but he still owns a bunch of shares. In its two and half month trading, which I think is long enough that the syndicate bid would be gone, it has had a volatile ride to a 4% gain. That it did not blow up immediately tells me it is a real company and that no one is trying to pull a fast one--no one pulling a fast one is not much of an argument to buy a stock but I am willing to watch this one as I try to learn more about it (I watched Ecopetrol for months before buying it for clients).

Coincidentally I found this article about food and farming on Bloomberg. For me, the money quote was "global food output will have to climb 70 percent between 2010 and 2050 as the world population swells to 9.1 billion people and rising incomes boost meat and dairy consumption." Figuring the best way in may not be easy but this is a real theme. If New Zealand's Fonterra ever went public I'd probably be very interested.

As far as equities, this blog covers this all the time. There is no reason that in any of these portfolio concepts that the equity portion can't be a properly diversified equity portfolio. Given the doom that Faber sees coming to the US and Euroland he might suggest avoiding those parts of the world in favor of certain markets in Asia and maybe Latin America (here I am talking about what he might suggest, I am obviously a big fan of certain parts of Latin America).

Precious metals are easy in terms of choices. There are now multiple physical gold ETFs and several other metals are available too. If you believe there is any sort of malfeasance with how the metal is accounted for, as some people do, then you should avoid the funds. There are also plenty of interesting equity ETFs and individual stocks in this space as well.

You can look under the hood of the various ETFs for ideas for individual names if you are so inclined to that type of investment. While no one should forget the Mark Twain quote about showing him a gold mine and his showing you a hole in the ground with a liar standing over it there are plenty of small companies with producing mines in various parts of the world that trade in Canada and London, again for anyone inclined to do the work, and some of these stocks will do very well. There is nothing easy about selecting this type of stock but they are out there.

No mention from Faber about Thai Tap Water, which is a name he was mentioning quite frequently there for a while.