Commodity Mutual Fund
Commodity Mutual Fund
Do you want to invest in the commodity market? Have you considered investing through commodity mutual funds? These funds which are readily available online, a broker or through a financial planner, gives you broad exposure and also reduces your risk. For example, you may decide to invest only in the coffee and cotton markets and if there is a negative movement in the market, then you lose. But if you are investing through a commodity mutual fund, then the fund managers would distribute your investment in many markets. Thus on the one hand reducing your risk factors and on the other, enhancing your profit opportunities. If prices in all markets fall (extremely unlikely), then you must be extremely unlucky! The trick is to diversify your portfolio.
A commodity mutual fund is designed for investors who are looking for growth in the long term rather than short term and who are willing to accept greater risk. However always keep in mind that, past results are no guarantee of future performance. Thus, a commodity based fund should comprise only a small percentage of an investor's overall portfolio.
2 major commodity mutual funds are the Oppenheimer Real Asset Fund and the PIMCO Commodity Real Return Strategy Fund. Both funds use commodity futures/swaps contracts, which are naturally leveraged, so both funds keep some of their assets in bonds. The PIMCO fund uses US Government inflation-protected bonds, whereas the Oppenheimer Fund uses non-inflation protected bonds. The Oppenheimer Fund arguably has more inflation risk as a result.
Before the Oppenheimer fund was created, there was no way individual investors could make investments comfortably, with the exception of a London traded closed end fund. Commodity pools and managed-futures accounts, which attract some investors with the promise of bang-up returns, use plenty of leverage and chase trends rather than track commodities in a broad way. Mutual funds are also marketed to wealthy investors, while the Oppenheimer fund's $1,000 minimum, allows investments by smaller investors.
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