It’s been a while since investors have had a reason to celebrate any type of commodity, but that could all be changing. With the exception of oil, which is caught in the grips of an OPEC battle against other oil producers, commodities are finally starting to see a recovery.
Gold is up around 18% year to date, and silver is up more than 10%. But it’s not just precious metals and safe-haven assets seeing gains. Industrial metals like copper and steel are rebounding, and others are starting to see a similar recovery. But hopping aboard the commodity bandwagon isn’t as easy as simply buying shares of a stock. As such, mutual funds are the best way to take advantage of the commodity resurgence. However, with thousands of funds from which to choose, finding the right fit can be a bit like trying to find a needle in a haystack.
Not All Funds Are Created Equal
Many commodities are on the rise, but picking a broad-based mutual fund might not be your best bet. Oil has been suffering for more than a year now, while natural gas has done even more poorly and is down around 21%. Commodity funds tend to be singular entities that either focus on one particular commodity or invest in every type of commodity, making it a challenge to pick and choose baskets at will.
Still, a basket of different commodities is the ideal way to go for investors betting on a commodity recovery. Even if a few commodities are lagging, as long as more are outperforming, then it won’t matter.
Blackrock Commodity Strategies
Blackrock Commodity Strategies (BCSAX) is the definition of broad-reaching. It invests in both commodity-based derivatives as well as equities tied to commodities. Everything from energy and mining companies to agricultural companies are represented in the fund.
BCSAX carries a 1.5% expense ratio, making it relatively expensive, however, its wide diversity in commodities could make it a contender right now. Its top 10 holdings include Monsanto (MON), Exxon Mobil (XOM), and Tyson Foods (TSN). While the fund has done poorly over the past several years, it’s up around 10% year to date.
Credit Suisse Commodity Access Strategy Fund
CRCAX invests solely in derivative-backed commodities without investing in physical commodities. It invests in a broad spectrum of commodities including energy, metals, and agriculture. It’s performance is tied to the Credit Suisse Commodity Benchmark Total Return Index.
The expense ratio for the fund is low for its type at 1.15%. Year to date, the fund is up about 4%, but further gains in commodities could help this fund drastically outperform as the year goes on. Since the fund avoids equity investments, its holding are made up of commodity derivatives in the form of bonds, futures and other asset types.
Arrow Commodity Strategy Fund
A blended commodity fund, CSFFX invests in derivatives, ETFs, and even other mutual funds. Because it invests in a variety of commodity-based assets, this fund is well-diversified. But that diversity comes with a high price, an expense ratio of 2%. Although the fund is up just 5% year to date, as long as commodities keep rising, this fund should generate outsized gains.
The Bottom Line
Commodities are on the rise and mutual funds provide investors with the best opportunity to profit. Usually, futures are the preferred method of investing in commodities. Alternatively, stocks heavily tied to commodities can offer investors leverage. But mutual funds are an all-encompassing investment product that provides investors with both exposure to commodities as well as professional management. For those looking for commodity exposure, mutual funds are the best way to go.