Commodity investment

[dasinsin]

Dear My friends:
I am curious whether you put "commodity funds or ETF" in your investment portfolio. Currently it is "0" in my portfolio. I need your advise to know whether it is worth to add some in portfolio due to uncorrelated to equities.
How much is suggested to add in? If there are books or articles suggested, it would be more appreciated.

Dasinsin

 

[2B]

If you invest in the typical index funds discussed here -- large caps, small caps, total market and international. You already have a component for commodities in that oil, mining and agricultural companies are in those indexes. If your question is "does anyone overweight commodities," my answer is no but I'm sure some people have energy or precious metal funds.

 

[Cb]

Dasinsin,

Here are a few sites you might checkout:

http://www.altruistfa.com/readingroomarticles.htm#Commodities

http://raddr-pages.com/research/CommodityFutures.htm

I have ~10% allocated to the Pimco commodities futures fund PCRIX in our equity-heavy portfolio

Cb

 

[mathjak107]

i use gsg, pcrdx and dbc switching among them from time to time

 

[Patrick]

"Work Less, Live More" suggests 4% in commodities for the "cornucopia" portfolio.

 

[Spanky]

My commodity fund, PCRIX, is 1.8% of my portfolio. The YTD is only 5%.

 

[Alex]

Personally, I don't think you need it.

 

[mathjak107]

i agree you probley dont need it but non the less i like it because it adds a little excitement to my portfolio. im probley about 3-4% in commodities plus i call it my gas rebate program.

never forget we are only 1 geo, political or storm away from 4.00 gas again. at least i get something back as it rises.

 

[brewer12345]

Adding 5 to 10% of PCRIX or DJP is almost a no-brainer to any bond and equity portfolio, IMO. Go read the research.

 

[Danny]

I'm in DBC - Powershares Deutsche Bank Commodity Index Tracking Fund - it's an ETF

Tracks light sweet crude, heating oil, aluminum, corn, wheat and gold

 

[frb53]

4% CRSOX

 

[simple girl]

OK, can someone educate me here? I'm not well versed in commodities.

What is the difference between a fund like PCRIX and PRNEX (T. Rowe Price New Era). Both are listed as specialty-nat resources. Does that make PRNEX a commodity fund

 

[brewer12345]

OK, can someone educate me here? I'm not well versed in commodities.

What is the difference between a fund like PCRIX and PRNEX (T. Rowe Price New Era). Both are listed as specialty-nat resources. Does that make PRNEX a commodity fund

PRNEx invests in stocks of companies that produce natural resources. PCRIX invests directly in the commodities themselves via commodity futres contracts. I think PCRIX is a much better way to go.

 

[HFWR]

~5% of port in PCRIX.

 

[simple girl]

PRNEx invests in stocks of companies that produce natural resources. PCRIX invests directly in the commodities themselves via commodity futres contracts. I think PCRIX is a much better way to go.

Thanks brewer. Can you explain why you think PCRIX is a better way to go?

 

[brewer12345]

Thanks brewer. Can you explain why you think PCRIX is a better way to go?

PCRIX (or DJP for taxable accounts) is better for a couple of reasons:

- Nat resource companies can hedge out commodity exposure, lever up, do stupid acquisitions,and go BK. This is not an issue with PCRIX/DJP because they just have long commodity futures exposure.
- In a market crash or runaway inflation scenario, nat res stocks can crash with all the other stocks. Commodities traded on the futures markets don't have these issues.

There are other reasons that are very technical, but the above is the main reasons. Commodity exposures help offset inflation, which you are at risk of by owning stocks and bonds, and they offset the risk without introducing the potential pitfalls of nat res stocks.

 

[soupcxan]

Brewer, how is DJP affected by FX changes in the value of the dollar? That is to say, does it offer any protection against a declining USD? I assume the foward contracts in DJP are dollar-denominated. If we assume everything else stays constant but the value of the dollar drops, the price of a global commodity expressed in USD is going to rise, so you would see an increase in the value of DJP. Is that logic right?

 

[brewer12345]

If we assume everything else stays constant but the value of the dollar drops, the price of a global commodity expressed in USD is going to rise, so you would see an increase in the value of DJP. Is that logic right?

Correct. If you compare the price of gold in USD and JPY over the last 5 years, you get a very, very different picture.

 

[soupcxan]

Given your response, could I be taking on too much FX risk by holding 10% of an unhedged foreign bond fund (begbx) plus 10% of DJP? Where do you cross the line from efficient portfolio diversification into over-weighting/speculation?

 

[brewer12345]

Given your response, could I be taking on too much FX risk by holding 10% of an unhedged foreign bond fund (begbx) plus 10% of DJP? Where do you cross the line from efficient portfolio diversification into over-weighting/speculation?

I wouldn't think it'd be too much currency risk, considering how much stuff we import into this country.

 

[mathjak107]

natural resource stocks are still stocks first and a play on commodities second. they are still subject to political issues, strikes , supply disruptions and management. years ago gold soared while ASA limited south africas gold mine closed end mutual fund dropped big time because of a mining strike.

funds like pcrdx, gsg dbc uso gld all buy the commodities themselves not the stocks of companies.

commodities themselves are no where near as volatile as the stocks of companies that are in the natural resources arena. fidelity select energy services is usually up or down in most years by 40% or more from top to bottom.