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do you hold commodities?
Old 05-05-2011, 08:35 PM   #1
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do you hold commodities?

I am reading Swedroe's book on "The only guide to alternative investments you ever need" and he makes a point that commodities offer good diversification benefit (i.e. can reduce risk without lowering overall return, and perhaps even raising the return some).

Do people here hold commodities in your portfolios?

He also makes a point that it is best to hold them in non-taxable accounts, which does not apply to me (since I don't have a choice to do that) so my only choice is whether or not to add them to my taxable account.

I have what I think is a pretty conservative allocation of 40% bonds, 40% stocks about 5-6% each gold and reit and some cash. Wondering if adding commodities makes sense for me? (since I already have gold)

if you hold commodities - what fund/etf/etn? and why? and how much (of your total pf?)

Thanks
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Old 05-05-2011, 09:00 PM   #2
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About 5% in PCRIX in tax advantaged.
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Old 05-05-2011, 09:16 PM   #3
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Not exactly. I own companies that make money on commodities--oil companies, specifically. Commodities per se are speculative and therefore simply gambling. You are betting that the price will rise before your contract expires, and that you are smarter than the average commodity broker. If you make money on the trade, you have to do it all over again the next day.
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Old 05-05-2011, 09:56 PM   #4
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I don't hold any. My current slice and dice portfolio is complex enough and the potential risk reduction/reward is insufficient for me to add them. I certainly would not hold them in a taxable account - that would negate what little benefit may be had by owning them.

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Old 05-05-2011, 09:58 PM   #5
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We have 3% in PCRIX.
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Old 05-05-2011, 11:12 PM   #6
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Quote:
Originally Posted by Ed_The_Gypsy View Post
Commodities per se are speculative and therefore simply gambling. You are betting that the price will rise before your contract expires
... or that your chosen currency will fall...

I didn't hang on to my copy of Swedroe's alternative investment guide, but IIRC he only praised commodities for their lack of correlation-- not for their consistent market-beating gains.

We don't hold any commodities in our retirement portfolio. Just equities & cash.
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Old 05-06-2011, 02:05 AM   #7
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I don't.
Quote:
Originally Posted by norisk View Post
Do people here hold commodities in your portfolios?
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Old 05-06-2011, 06:08 AM   #8
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I did. But recently sold DBC due to a nice run up in price. Also trimmed a handful of stocks.
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Old 05-06-2011, 06:45 AM   #9
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We have investments in energy (vanguard energy) and PM (vanguard metals and mining) funds and CCF (recently sold). Jeremy Grantham at GMO writes a quarterly letter, the most recent he devoted to natural resources. You can see it here (free registration required) https://www.gmo.com/America/Research/default

As Nords indicated, Swedroe's position has always been CCFs as a portfolio diversifier, not a core holding. His debates with Rick Ferri on this are legendary and unresolved.

Bill Bernstein favors PM as a diversifier as well but notes its high volatility.
Precious Metals Equity

RADDR did some interesting work on CCFs as well have long been interested in using commodity futures as an asset class but until recently there has been no simple way to implement a
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Old 05-06-2011, 07:55 AM   #10
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I had ~ 5% in PCRIX, PRNEX and GLD, but cut back to ~ 2.5% a few weeks ago waiting to see what happens wrt QEII at end of June. Also, have some exposure with Permanent Portfolio and HRSTX, but that was not included in the aforementioned %s.
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Old 05-06-2011, 08:30 AM   #11
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Quote:
Originally Posted by 73ss454 View Post
About 5% in PCRIX in tax advantaged.
+1

Recently topped my rebalance band, so I sold ~$5600 worth (moved to BSV). For once, my dirty market timing adherence to a rigorous asset allocation and rebalancing paid off...
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Old 05-06-2011, 08:49 AM   #12
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Have GSP and DBC. Agree that it is a good diversification tool, although this week was a killer!
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Old 05-06-2011, 09:11 AM   #13
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From The Economist Magazine: "Then there is the issue of higher commodity prices. Jeremy Grantham of GMO, a fund-management group, has compiled an equally weighted index of 33 commodities. This fell by 70% between 1902 and 2002 in real terms. It has regained all that ground in the past nine years. The rise of developing nations is generally deemed to explain this commodities boom. Since raw materials have greater weight in the inflation baskets of such countries, it makes sense for investors in China and India to buy gold as a hedge against this phenomenon."

OK, now if I had bought 10 years ago and had some good gains I would be patting myself on the back. But I didn't (and did OK) but I do not see adding commodities at this time. Maybe when everyone sells off and there are articles that commodities are horrible, it will be a better time to buy.
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Old 05-06-2011, 10:18 AM   #14
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Not as many as yesterday - sold half our dab of USAGX yesterday - it sold at a buck and a half less than the price when I put in the order. Also sold a couple dental crowns yesterday for $105 - a sixth of what it cost to remove them from my head.
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Old 05-06-2011, 10:35 AM   #15
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I have a 5% portfolio stake in junior miniing stocks. They benefit from commodity price increases but also from their discoveries (or not). The winners tend to outrun the losers by a considerable amount. But my last big winner, Corriente Resources was taken out early through acquisition and I have not reinvested that amount as yet so I am a little below my target weighting.

I stay away from commodities themselves because I consider options contracts to be high risk gambling. My approach is much more boring than that.

(BTW MF Global increased their margin requirements from 6% to 10% last week. That would be driving all equities down as investors scramble to sell to cover.)
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Old 05-06-2011, 11:23 AM   #16
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7% in GLD. Half that when I bought. It's been one of the few good runs. 2% in Oneok natural gas piplines MLP. Very good return, pretty variable price. Their K-1 can be a bit of a pain for tax returns.
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Old 05-06-2011, 11:34 AM   #17
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I own US and international index funds....so I own commodities companies. I don't see the point in owning sector or individual commodities funds.
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Old 05-06-2011, 12:27 PM   #18
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I own US and international index funds....so I own commodities companies. I don't see the point in owning sector or individual commodities funds.
Index funds of what - commodities or broad range of stocks - and how much? They may not contain the %age one may want.
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Old 05-06-2011, 12:51 PM   #19
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Index funds of what - commodities or broad range of stocks - and how much? They may not contain the %age one may want.
I have no % requirement for commodities related stocks.....I just buy the whole market
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Old 05-06-2011, 02:13 PM   #20
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We have investments in energy (vanguard energy) and PM (vanguard metals and mining) funds and CCF (recently sold). Jeremy Grantham at GMO writes a quarterly letter, the most recent he devoted to natural resources. You can see it here (free registration required) https://www.gmo.com/America/Research/default

As Nords indicated, Swedroe's position has always been CCFs as a portfolio diversifier, not a core holding. His debates with Rick Ferri on this are legendary and unresolved.

Bill Bernstein favors PM as a diversifier as well but notes its high volatility.
Precious Metals Equity

RADDR did some interesting work on CCFs as well have long been interested in using commodity futures as an asset class but until recently there has been no simple way to implement a

Thanks for all these useful links and to all others who replied. BTW, in the same book I mentioned Swedroe says that stocks of commodity producers do not behave like commodity prices, but move more aligned with other stocks, so in terms of diversification they are aparatenly not as good as commodities (according to what I understood his argument to be - stocks and commodities have negative correlations but stock sof commodity producers have possitive correlation with the overall market).


I do have some GLD and REITs already, so probably that is enough of a diversificaiton since there is no clear cut case for holding commodities (especially in a taxable account).

Thanks!
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