Commodity Funds

Commodity Funds

Commodities and their pricing is always headline news, the price of oil, gold, sugar, coffee and rice is crucial to our everyday lives. While investing in commodities was previously for the sophisticated investor , the introduction of commodity mutual funds now provides an opportunity for almost any investor to get a piece of the action.

Commodities provide the opportunity for portfolio diversification. Investing in futures contracts or actual commodities provides a portfolio component that is not a traditional stock, bond, or a mutual fund that invests in stocks and/or bonds.

Historically, commodities have had a low correlation to traditional equity markets, meaning that they do not always fluctuate in tandem with market movements. For many investors, achieving this low correlation is the primary objective when seeking to add diversification to a portfolio.

Commodities also offer potentially exciting upsides since the raw materials used in construction, agriculture and many other industries are subject to the laws of supply and demand. When demand rises, prices generally follow, resulting in a profit for investors.

It is not always a rising market, the commodities markets can be volatile and subject to wild, short-term price swings and long lulls. Natural disasters, crop shortages, industrial action in a producing nation can all effect pricing. Over the course of just a few days, prices can go from record highs to record lows. Just take the price of gold and its pricing over the last 25 years or so.

Another item of note is the composition of various mutual funds and the benchmark indexes that they track. In many commodities indexes, when a mutual fund seeks to directly replicate the index, you need to see what the maximum holding in any single commodity is; this over-concentration in a single investment increases your risk profile.

Using the research features in the oyster bay menu it is possible to invest in commodity funds with leading fund managers.