Choosing the Right Commodity Mutual Fund

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Choosing the Right Commodity Mutual Fund

Daniel Cross Mar 24, 2016

It’s been a while since investors have had a reason to celebrate any type of commodity, but that could all be changing. One of the primary reasons would be a relatively weak U.S. dollar, which is expected to support the commodity asset class as a whole. At the same time, it is important to note that commodities have failed to live up to the bullish expectations as fears of trade wars, geopolitical tensions and uncertainties associated with such events have overpowered the fundamental strength the asset class demonstrated while making a recovery post the financial crisis.

Nevertheless, 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

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. However, it is important to note that the majority of the broad-basket commodity-based mutual funds have underperformed year-to-date.

Blackrock Commodity Strategies

BCSAX carries a 1.21% expense ratio, making it relatively expensive, however, its wide diversity in commodities could make it a contender right now. Right now, the fund is invested roughly 23% in U.S. Treasuries, followed by 2.35% in Royal Dutch Shell (RDS-A), 2.15% in BHP Billiton (BHP) and 1.67% in Chevron (CVX).

Despite going up by more than 10% last year, the fund has remained almost flat year-to-date.

ALPS CoreCommodity Management Complete Commodities Strategy Fund

Although the fund remained flat year-to-date, it returned more than 11% for the rolling 1-year.

DoubleLine Strategic Commodity

Year to date, the fund is down about 1.59%, although the fund was up more than 15% for the rolling 1-year. Since the fund avoids equity investments, its holding is made up of commodity derivatives in the form of bonds, futures and other asset types.

The Bottom Line

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