MDCigan

Commodity Exposure Via ETFs: A Fund Manager's Process

Good article Keith,

I have considered some of the same questions/issues for myself and my clients in terms of commodity exposure which I agree is essential to creating a diversified portfolio.

"It was roughly 4 years ago that we looked into adding commodity exposure to our portfolios. At the time, the only real solution we arrived at was either the PIMCO Commodity Real Return Strategy Fund [PCRAX)], buying and selling actual futures or piecing together various stocks or single commodity funds. At the time we decided not to move forward with either solution, as we felt the expense of paying a broker load plus the funds internal expense (call it a fundamental flaw)"

FWIW, and maybe you already know this, but there are class D shares for the PIMCO Commodity Real Return Fund which do NOT have a load (but the expense ratio is slightly higher). This has been my method for gaining commodity exposure.

I also agree with your thoughts on agricultural commodities. If I recall correctly, I think Rogers made some comments recently about being most bullish on agricultural commodities. I still like energy especially nat gas over the long-term.

I too I am concerned about the "contango" issue. If this is more of a long-term structural change in the commodities futures markets instead of just a temporary thing, it certainly will be a drag on any commodity based mutual fund, ETF, or ETN that rolls commodity futures. My thought is to look more at commodity based equities but that introduces significantly more research and complexity, and there is no assurance that any single stock will track the commodity price.