An Introduction to Commodity Managed Funds - dummies

An Introduction to Commodity Managed Funds

By Amine Bouchentouf

If you think delving into commodity derivatives isn’t for you, you can access the commodity markets through funds. If you’ve invested before, you may be familiar with these two investment vehicles.

Commodity mutual funds

Commodity mutual funds are exactly like average, run-of-the-mill mutual funds, except that they focus specifically on investing in commodities. You can choose from several funds, although the two biggest ones are the PIMCO and the Oppenheimer funds.

A 2005 ruling by the Securities and Exchange Commission (SEC) changed the way mutual funds account for qualifying income. This ruling has put some pressure on funds, particularly PIMCO, to come up with different accounting methods. Make sure you find out how such rulings affect your investments.

Commodity exchange-traded funds

Exchange-traded funds (ETFs) have become popular with investors because they provide the benefits of investing in a fund with the ease of trading a stock. This hybrid instrument is becoming one of the best ways for investors to access the commodities markets.

The world of commodity ETFs is fairly new and is constantly changing. Because this is such a dynamic field, there is a section called ETF Watch on Commodities Investors LLC that you should check out, to stay up-to-date on everything that’s happening in the world of ETFs.

You currently have at your disposal ETFs that track baskets of commodities through commodity indexes, as well as ETFs that track single commodities such as oil, gold, and silver.

ETF Description
Deutsche Bank Commodity Index Tracking Fund (DBC) Tracks the performance of the Deutsche Bank Commodity
US Oil Fund (USO) Mirrors the movements of the WTI crude oil on the NYMEX
Street Tracks Gold Shares (GLD) Tracks the performance of gold bullion
iShares COMEX Gold Trust (IAU) Tracks the performance of gold futures contracts on the
iShares Silver Trust (SLV) Tracks the performance of silver

Make sure you examine all fees associated with the ETF before you invest.