Commodity Mutual Funds on the Market - dummies

Commodity Mutual Funds on the Market

By Amine Bouchentouf

If you’re looking to invest in commodity mutual funds, you can choose from two main funds: the PIMCO Commodity Real Return Strategy Fund and the Oppenheimer Real Asset Fund.

To find out more about commodity mutual funds, a useful tool is the Morningstar website. This all-around excellent resource for investors includes lots of information related to commodity mutual funds, such as the latest news, updates, load charges, expense ratios, and other key data. It also uses a helpful five-star ratings system to rate mutual funds.

The PIMCO Commodity Real Return Strategy Fund

With more than $14 billion in assets under management, the PIMCO Commodity Real Return Strategy Fund (PCRAX) is the largest commodity-oriented fund in the market. Although the fund is actively managed, it seeks to broadly mirror the performance of the Dow Jones–AIG Commodity Index. As such, the fund invests directly in commodity-linked instruments such as futures contracts, forward contracts, and options on futures.

Because these contracts are naturally leveraged, the fund also invests in bonds and other fixed-income securities to act as collateral to the commodity instruments. This fund offers two classes of shares: A and B. Make sure to examine each class carefully, to choose the best one for you.

  • Class A shares have a minimum investment amount of $5,000, a front load of 5.5 percent, and an expense ratio of 1.24 percent.

  • Class B shares require no front load, although they incur a deferred sales charge of 5 percent and an expense ratio of 1.99 percent.

The Oppenheimer Real Asset Fund

With a little less than $2 billion in assets, the Oppenheimer Real Asset Fund (QRAAX) is considerably smaller than the PIMCO fund. It tracks the performance of the Goldman Sachs Commodity Index, an index that tracks a broad basket of 24 commodities.

With a $1,000 minimum investment requirement, Oppenheimer requires a little less capital up front than the PIMCO fund. It offers five classes of shares (A, B, C, N, and Y); Class A is the most popular among average individual investors.

Class A shares have no deferred sales charge, although they have a front load of 5.75 percent and an expense ratio of 1.32 percent. So even though you need less initial capital to invest in the Oppenheimer fund, it’s slightly more expensive than the PIMCO fund because of the front-load charges and its expense ratio.

Additional commodity funds on the market

Although Oppenheimer and PIMCO offer the two most popular commodity funds, other firms are starting to offer similar products to satisfy the growing demand from investors for funds that have wide exposure to the commodities markets.

Two newcomers to the market are the Merrill Lynch Real Investment (MDCDX) and the Credit Suisse Commodity Return Strategy Fund (CRSCX). As more investors seek exposure to commodities, expect more funds of this nature to crop up in the future. This growth is good news because you’ll have more funds to choose from.