If you ask most people which is the best performing market this year, some common answers could be “Oil stocks”, “S&P 500”, or even the “Straits Times Index”. Even professionals in the financial industry would focus their attention solely on stocks and a few other common asset classes like oil, gold, and bonds.
The top performing market of 2016 (so far) is hardly something that most would expect: Soybean meal. As of 10 June 2016, it is up approximately 52% year-to-date.
Why Soybean Meal Exploded In Value
When soybeans are crushed, one of the byproducts is soybean meal. This meal is typically used for animal feed due to its high protein content. Fundamentally, increases in demand are expected to outstrip increases in supply – reducing the stocks-to-use ratio to multi-year lows.
Aside from the usual weather and country-specific factors (issues with shipments in Argentina, top exporter of soybean meal globally) that have forced prices higher, there have also been high levels of speculation from funds – pushing the prices higher with little pullback.
Learn To Look Outside Of Stock Markets
Stocks are generally the most popular and accessible investment instrument to most of us, due to their constant coverage in the mainstream media. However, there are benefits to following other markets as well. If you own a portfolio of stocks, you are exposed to the fluctuations of the overall general market. So even if you were right about company’s fundamentals, a sharp selloff like what we saw in February 2016 would see your portfolio take a hit.
Investing in other asset classes, such as bonds, commodities or gold, would diversify your holdings and provide another source of returns. Of course, proper portfolio allocation and research has to be done prior to any other investments – but as we can see from the case of soybean meal, this diversification would have paid off big time this year.
Finally, having a view on other asset classes could also help inform your view on certain stocks. Companies who have businesses closely linked to the commodity could be a strong value investment. For example, Archer-Daniels-Midland Co., a soybean processor, is up almost 19% year-to-date. Investments in oil-related companies have also paid well this year, following the rebound in oil prices.
Top Image Credit: DollarsAndSense.sg
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