The Best Commodity Mutual Funds
Commodity mutual funds work the same way as other mutual funds, meaning the money accumulated from investors is put together to form a fund that is managed by professional advisers. The difference is that instead of buying shares and stocks, the fund managers buy and sell commodities. Commodities are raw materials used for manufacturing various products, industrial as well domestic consumables. Common investors may find it difficult to directly invest in commodities as the commodity markets are usually dominated by commodity producers, professional traders, users and speculators. So, commodity mutual funds allow independent investors to participate in this market and make profit. There are different types of commodity mutual funds with different strategies for investments. Simultaneously, these funds present an opportunity for investors to have a more diversified portfolio.
Investments in Commodities
Investment in such mutual funds broadens investors’ exposure to risk because commodities can work as inflation hedge and provide cover against the usual market decline in financial markets. With increasing inflation, the cost of stocks and shares are expected to fall as operational expenses of businesses and rates of interest for procuring debts increase due inflation. Conversely, the costs of commodities tend to go up with increasing inflation and that goes to the benefit of commodity investors. At times, commodity markets too have slight parallel link to the costs of other fiscal markets. With falling prices of stocks, commodity prices don’t always follow the same trend and thus allow investors, having some exposure to commodity markets, to recover some of the losses suffered on stocks.
Inert Commodity Funds
For an overall gain from commodities, some investors as well commodity mutual funds opt for an inert investment strategy. It simply means investments are spread over various commodities like metals, agriculture, and energy, using the same parameters as used for compiling any specific commodity index. The comparative amounts invested in different commodities are not changed and the funds don’t calculate likely movements of another commodity markets. That makes passive commodity mutual funds having conformist investment approach most suitable for investors with moderately low tolerance for investment risks.
Dynamic Commodity Funds
Such mutual funds endeavor to do better than the standard commodity indexes. Advisers of these funds regularly seek more concerted investment coverage to picky commodities as per varying financial and market environment. Obviously, dynamic commodity mutual funds are more exposed to risk, but offer the prospects of higher return, making it more suitable for investors who like taking risk.
Commodity Stock Funds
Commodity mutual funds could invest straightway in actual commodities or in commodity futures and gain from changes in the process of futures contracts. These funds could also contain funds that totally invest in commodity stocks of companies which are in commodity business, producing agricultural or industrial commodities. Since such funds don’t invest directly in commodity funds, they provide a higher degree of safety to investors, should the commodity decline.