Would anyone know a good, low cost, commodity index fund? Jimmy Rogers, Marc Faber and others argue that we are about four years into a 10 to 20 year up cycle in commodity prices. Commodity prices, in aggragate, do tend to move in long cycles. I've looked a couple of times for a commodity index fund, but I haven't found one I like yet. The Rogers Raw Material Index looks to be the broadest index, but the fund carries a 6%+ front end load, plus pretty high annual fees because of the costs of rolling over futures contracts. Pimco's fund, PCRDX, also has a very high, front-end load and high fees, and it's an actively managed fund, not an index fund. Any ideas?
I think I see two factors that might raise the return of a commodity index fund relative to the rise of the CRB index. The first factor is that the CRB index grossly underestimates the increase in commodity prices. The CRB index is equally weighted among 17 commodities, whereas on a trade weighted basis oil is a much higher percentage of commodity sales. On a trade weighted basis the rise in commodity prices from 1970 to 2003 was probably more like 5%-6%/yr, not 2.8%/yr.
The second factor is that in order to remain effectively non-leveraged a fund might invest about 5% of assets in commodities at 20x leverage and 95% of assets in bonds. As a result a fund gets the return on commodities plus 95% of the return on bonds. If commodities return 6% and bonds return 6%, the fund returns (0.05)*(6%*20)+(0.95)*6% = 11.7%.
This still doesn't come out to a 15.6%/yr return for commodities, but it's a lot closer than the 2.8%/yr increase in the CRB index.
you're welcome Roberts...
as you can see from the buy dates i posted, I was still a little late to the comms/diversification party...still ..better late than never.. I'll take a look at r last question and see if I can come up wih anything worthwhile..I tend to stay away from funds if I can..dont like the fees/tax implications, so I tend to only hold a few positions in my IRA, and my dumb AMEX annuiy...<tho finally after 5 years, I'm getting a ahndle on it, and its finally gone green..>
Thanks for sharing, hummingbirdair. Between these stocks and the stocks you posted previously (msg #3099) you've given me a lot to think about. I think you're way ahead of me in both commodities and in diversification outside the US. On the commodities side I basically just own several of the large, integrated oil companies. Sort of a homemade basket. I did own BHP briefly but sold it. I was really just trying to play the Australian dollar. One company you didn't mention is SNP. You've probably looked at it. I own PTR and SNP, but SNP looks to be cheaper than PTR. I'd be interested in your opinion.
In real estate index funds I, too, noticed PETDX. Do you think it has any advantage over ICF or IYR? It has a bit higher fees, 1.25% versus 0.35% and 0.6% for ICF and IYR.
Thanks again, and good hunting.
have I? sure have..I look at AAUK about every month or so...and ,to be honest, I dont know why I dont buy it...maybe only because I have AU and SSL and thats enough Rand exposure.. I was flying safari in SA this summer,and I do have some long term concerns about stability there, post Mandela...maybe I shouldn't be so nconcerned,but I dont want too much exposure to SA, as a result. what made me stick with AU was unhedged gold reserves, and the move in to higher margin jewelry design <hasn't really taken off yet,but a potentially intersting move> and with SSL, the patents on coal gasification.. they provided *mini-moats*..IMHO....
On Currency hedging,in my PF :The SA guv'mint was recently quoted as*we wont intervene on rates*..but thats about as believable as GWBush wanting a *strong dollar*......
Have you ever looked at AAUK? They produce just about everything - gold, platinum, copper, coal, paper, they own half of Debeers and are quite profitable and the stock is cheap.
The knock on them is that they are not the most shareholder-friendly company and the Rand is hurting their results. The stock has been flat for some time, but geez, it sure seems cheap to me.
I own a little and tried to buy a little more recently but it snuck back over 23 before I had the chance.
Haven't read the rest of the thread ...
BUT, Pimco has PCRIX which is the institutional commodity fund. It is available through some brokers. Vanguard for one, apparently; some others, too. Expense ratio is 0.74% for the I version vs 1.4% or so for both the A and D version.
In addition to Faber et al, that you mention, Maggie Mahar in Bull! devotes one of her last chapters to commodities and specifically mentions the Pimco commodity fund as a possibility. She also talks a 10-20 year run.
Bull! is the book Buffett recommended this past year.
The fund is volotile. Up 20%+ in both 2003 and 2004? Issued at $15 originally in 2002 or 2001? Dropped to $12? Now at $15+.
If I were to stand back and actually think about how I want to be positioned for the coming year(s) which I have done the past few years (doesn't mean I follow through, but it's a good exercise), PCRIX is the move I would make.
I weigh it against more BRK (at a better price than currently) or just maintaining 4 years expenses in cash which is also important.
An interesting if frustrating dilemma.
Read Bull! if you haven't. HUGE!
I also came across this article. It has a list of funds and ETFs that I plan to look further into. Would love hear your thoughts.
Thanks for the suggestions. These are possibilities. As you imply, one may have to use multiple funds in order to cover the commodity spectrum. I like Vanguard funds in general because of their low fees. I usually prefer index funds to actively managed funds because the fees are lower, but the fees on the funds you mention are quite low, so I would definitely consider them. I was also leaning toward funds that invest directly in the commodities, as opposed to funds that invest in commodity producers, but funds that invest in commodity producers, as these funds do, are reasonable alternatives. However, I read on the Vanguard website that VGENX just closed to new investors, so we would need a substitute for that one.
BTW, I was mistaken about PCRDX. It does not have a front end load.
Thanks again for your help.