September 30th, 2010 
admin
Investors come in all varieties. Some are bold, if they have capital to lose or not. Some are cautious and consider capital preservation, with the hope of some small return over a long period, as the paramount value. Somewhere in between, but closer to the latter probably is the area for most fund investors.
Serious, regular investment is the arena of people who have resources and can have the time to reverse the act of frequently. Most traders do not have the time, expertise, nor the venture capital and the market regularly. To such people, mutual funds – in particular, mutual funds – is the perfect solution.
But stocks, bonds and other fixed income instruments are not the only items worth investing in. True enough, for a long time, the stock market performs better on average than most other investments. Somewhere in the range of 12% annual return, depending on the selected period. But there are shorter periods, extending for several years sometimes, when other investments outperform significantly. In recent years, that’s raw materials. As a result, commodity funds have risen in popularity.
Since the beginning of 2000, commodities have increased significantly. Gold has risen over 25% and oil has nearly doubled. In the same period, commodity funds have seen double-digit return.
Pimco, for example, has about $ 12 billion under management in their commodity fund and from mid 2004 to mid 2005 garnered a return of 14.5 5%. Their next closest competitor, Oppenheimer, with about $ 1.7 77 billion under management, earned 19.5 5% during the same per
Generally stocks and commodities tend to move in opposite directions. This was the period of 1974-2000, when the Dow Jones Industrial Average rose, while the DJ AIG Commodity Index fell. But the recent years have seen a reversal of the historical trend.
Nobody can predict how long it will last. Financial advisers always say: “Past performance is no indicator of future profits.” But in the last year that the S & P 500 fell 0.5%, while the Dow Commodity Index rose 6.5%. Over the longer period from May 2000, AIG Commodity Index rose 47% vs. a 15% decline for the Standard & Poor’s 500-stock index, if reinvested dividends.
This could end anytime, but due to pressure on oil and other energy prices – which affects the price of everything else – it seems unlikely to happen soon. Experts seem to agree, as most commodity funds are not selling short. Selling short would mean that speculators are betting on a decline in prices.
However, one must look under the covers a little bit. Commodity funds often have considerable investment in the items that you might not normally consider a commodity – like the United States Treasury securities. Pimco, for example, has more than 90% of its assets in T’s.
But technically, even financial instruments seems like commodities in some markets when they trade through futures contracts on some of the exchanges. Not only the instruments themselves sell as futures, but the indices that track the instruments do too.
As a commodity fund may have investments in commodities directly, or futures contracts that cover them, or even indexes that track them. The latter may be three steps removed from something you can see and touch, but profits are real.
Investing in them is an excellent way to diversify your portfolio and not just depend on stocks or bonds.
Mail this post
Posted in 
Tags: 
