The popularity of commodity mutual funds has skyrocketed in recent years. From seemingly no where more and more funds keep popping up. The daily financial news scarcely go by without any mention of commodity markets. This is due to several reasons. For one, the smashing success of high-profile commodity wizards such as Jim Rogers and George Soros has highlighted the financial opportunity available. Investors are no longer content to holding plain-vanilla stocks and bonds that their parents did. Commodities, like hedge funds and private equity, are sexy investments that spice up a portfolio and add excitement. Everyone wants in on the gold rush. Second, investors are more aware of several big trends that should drive the commodity market for years to come. To give a short list: the growth of China (and the rest of the developing world), “peak oil” theory and the food crisis. All of these factors should make the commodity market volatile in the next few decades (and with volatility comes the opportunity to make out-sized investment returns).
There are several options to personal investors wanting to put some of their portfolio into commodities . Hedge funds are the most famous option. Some of the funds have had extremely high returns in recent years. But only the extremely wealthy are allowed to buy into these funds. And many of the best-performing ones are closed to new investors. Commodity index funds are another option. They are low cost because they do not have to pay the salaries of investment managers. But they are merely designed to track an index. This is good option for investors who are primarily looking to diversify their portfolio and add an asset class that isn’t correlated with stocks or bonds. Commodity mutual funds might be the best option. They are open to everyone. They are not murky like hedge funds. And they have an active management that have the ability to exploit market inefficiencies and take advantage of the trends previously mentioned.