Some Exposure to Staple Commodities Makes Sense

I read a very thorough article about the water theme and water ETFs on Seeking Alpha over the weekend, and I was reminded how bleak the numbers surrounding potable water are, and how compelling the theme is. I have owned PowerShares Water Resources ETF (PHO) since its second or third day of trading, and while I have thought a better mousetrap will come at some point, the actual theme will be a part of the portfolios I manage for a long time to come.

I've made a couple of references to the evolution of of investing/portfolio construction/investment products in the last couple of days. In thinking about the ascendancy of a middle class in many countries where it did not exist, and the grimness of the numbers from the above article, will make having exposure to stuff or companies that help grow stuff increasingly important for investment results.

This includes food, commodities, water, oil, coal, iron ore, manure, timber, cement, grains, soft commodities, agricultural commodities, industrial equipment to plant, grow, harvest and deliver, alternative energy, and the list goes on.

In past articles I have noted subscribing to the notion that this will be China's century. Using the same sort of thinking, whereas the last century brought an accelerated evolution in finance, healthcare and technology, perhaps in this century, advancements in food and water (for lack of a better term) technology that provides enough of each for more people will be the big thing. This is not to say healthcare and technology will stand still though.

If this theory turns out to come anywhere close to reality, it will happen over many years, will be cyclical as it plays out, and will be demand driven. I would imagine that in addition to the types of things mentioned above, there will be some countries that emerge as proxies for different segments of this idea.

If this resonates with you, it's time to start learning. If you have a diversified portfolio that drifts toward narrower products or individual stocks, it is possible you already have some exposure to the concept, and while I will never think 25% in such a narrow idea would be the right allocation, having more than 4% probably will make sense.