Commodity Funds Are Leaking Oil

Oil prices have been plummeting worldwide on a glut of oversupply.  At the end of November OPEC met and elected to not cut production ensuring oil prices would fall further.  While a boon for oil importing countries and consumers.  The over 40% drop since the summer has hit oil producing countries and energy companies hard.  Another group that has felt a negative impact are those investing in commodities and specifically those invested heavily in energy commodities.

Some investors hold an allocation to commodities in their portfolio.  It is seen as a diversifier and as a potential hedge against event risk and inflation.  While we do not recommend all of our clients maintain an allocation to commodities we think it can potentially make sense for some investors.  As with other asset classes we seek to deliver commodities as efficiently and precisely as possible.  Therefore we recommend a fund that provides a broadly diversified exposure to commodities and does so at a relatively low cost for the asset class.

For clients that we believe a commodities investment is suitable we recommend the Credit Suisse Commodity Return Strategy fund.  It provides diversified coverage by limiting its exposure to no more than 33% to any one commodity sector like energy, metals, or livestock and no more than 15% to one single commodity.  Therefore it is not oil and energy heavy like many other funds.  As a result the fund has weathered the recent decline in oil better than many other funds.  The fund fell 3.99% for November and is down 10.24% for the year.  This compares to the PowerShares DB Commodity Tracking fund, a very popular commodities fund, which allocates roughly 55% to energy and was down 9.06% in November and 20.83% for the year to date.

It has no doubt been a tough go for commodities in 2014, but when investing in the asset class we prefer diversified exposure so if one area gets hit hard it is not as detrimental to the investment.

 

Index Performance                                       Nov.     YTD     Trl 1 yr.        

US Stock (Russell 3000)                                    2.42%    12.56%   13.44%
Foreign Stock (FTSE AW ex US)                      0.77%     0.46%      1.33%
Total US Bond Mkt. (BarCap Aggregate)        0.70%     5.86%     5.26%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)     0.29%     1.50%      1.07%
Municipal Bonds (BarCap 1-10yr Muni)          0.10%    4.63%      4.47%
Cash (ML 3Month T-Bill)                                   0.00%    0.03%     0.05%

 

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

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