An Investment Fund for Commodities?

horlicksjan

I have been struggling to decide which fund or ETF to use to invest in the commodities part of my portfolio.

My criteria is:

1. Low annual Total Expenses Ratio
2. Exposure to broad commodity prices (i.e. metals, fuels, agricultural...)
3. Preferably no initial fees (I can compromise on a one-off initial fee if criteria 1 and 2 are met).

This is for a long hold, not regular trading.

I have spent hours trawling through the various funds and ETFs and cannot decide. Thank you for any suggestions I can look at.

ozzage

Marlborough ETF Commodity fund?

Edit: That's not a recommendation but an idea, however I think it's reasonably sensible to use something like that fund. It's very difficult to have enough knowledge of ALL of the possible commodities to invest sensibly in a true DIY manner.

Are metals good? Which ones? Oil? Futures? How long? What about Contango? How about soft commodities? Grains? Hogs? Wood? etc etc. How any retail investor can realistically expect to navigate this minefield is a bit beyond me.

Therefore I don't find it unreasonable to use a managed fund for commodity exposure.

horlicksjan

ozzage wrote: »

Marlborough ETF Commodity fund?

Edit: That's not a recommendation but an idea, however I think it's reasonably sensible to use something like that fund. It's very difficult to have enough knowledge of ALL of the possible commodities to invest sensibly in a true DIY manner.

Are metals good? Which ones? Oil? Futures? How long? What about Contango? How about soft commodities? Grains? Hogs? Wood? etc etc. How any retail investor can realistically expect to navigate this minefield is a bit beyond me.

Therefore I don't find it unreasonable to use a managed fund for commodity exposure.

Is that Marlborough ETF Commodity A Acc (GB00B195JD82) 1.97% Fund Manager Ongoing Charge + 1.5% AMC, or Marlborough ETF Commodity Class P Acc (GB00B84RD695) 1.22% Fund Manager Ongoing Charge + 0.75% AMC. Both these look like a big slice of capital lost to charges each year. I take your point that I wouldn't know which commodities to pick, but I think I'd rather have a tracker style fund that is following a broad basket tracking the prices for many key commodities.

Any suggestions will not be taken as advice. But if anyone cares to post any suggestions for commodity funds they include in their portfolio and why, I'd appreciate that.

cloud_dog

horlicksjan wrote: »

I have been struggling to decide which fund or ETF to use to invest in the commodities part of my portfolio.

I think you need to clarify if you are looking to invest in commodities (directly) or companies that extract/benefit from a commodity?

Either way with commodities being a fairly small pond in the investment world you are unlikely to get low TERs.

Shaolin_Monkey

Yes you can either invest "directly" through an ETC that tracks a commodity price (or basket of different commodities). Or you can invest indirectly for example through a fund that invests in equities related to commodities.

I think there are issues with non physically backed ETC's in that they can lose money over time without any movement in the underlying commodity prices (beyond what you'd see from just the management charge alone). They aim to track movements in the commodity prices by buying futures or similar derivatives. These derivatives have a limited life and have to be 'rolled over' frequently, and there is a cost associated with doing this. Over the long term the costs mount up. I think there are particular issues in some markets like natural gas due to 'contango' and the performance of funds tracking these markets can deviate quite dramatically from the spot price over time.

This does not affect physically backed ETC's for example the physical precious metal funds. They of course do have managment charges and are charged fees for storing the metal.

Personally, I would not bother investing in futures backed ETC's as a long term hold. If you must invest in a commodity fund then something like Blackrock World Mining Trust IT currently yields approx 5% and will benefit from any recovery in the demand for mined commodities. It's quite strange that a mining fund is one of the better yielding investment trusts available, but I suppose that reflects the slump of the last few years in the commodity sector. It is a very volatile fund however!

horlicksjan

cloud_dog wrote: »

I think you need to clarify if you are looking to invest in commodities (directly) or companies that extract/benefit from a commodity?

Either way with commodities being a fairly small pond in the investment world you are unlikely to get low TERs.

I don't mind which. Whichever gets me exposure to commodities for the desired reason, which is to balance my portfolio with some asset classes (property, commodities, bonds) which tend to have returns uncorrelated to equities (where most of my portfolio is at present).

My equities will probably already have exposure to companies that are involved in commodities, so I think I should favour funds/ETFs that invest/track commodities directly. But my thinking is based only on having read some books on putting together a portfolio, so I may be wrong. Commodities is really proving the tricky one for me to decide how best to add this to my portfolio.

mrsweep

Shaolin_Monkey wrote: »

Personally, I would not bother investing in futures backed ETC's as a long term hold. If you must invest in a commodity fund then something like Blackrock World Mining Trust IT currently yields approx 5% and will benefit from any recovery in the demand for mined commodities.

This is an income fund. With a fund like this can you reinvest dividends for growth? Can this be done with an income fund like this, or would dividends automatically be paid out into a bank account?

Shaolin_Monkey

It's an investment trust so it's exactly the same as with ordinary shares. If you held them in a nominee account with a broker the dividends would, by default, be paid as cash to your brokerage account. The broker may have options to re-invest dividends automatically for a fee (see "dividend investing" in this table for some comparisons of costs). Other ways of investing include a savings plan provided by Blackrock themselves.

It's worth noting that as it's treated as a company share, buys are subject to 0.5% stamp duty.

I'd also add that Blackrock have a commodity income IT available which yields a bit more than the mining trust, and is a bit less volatile. It invests in a more diverse spread of commodity shares (oil companies and diversified commodities as well as miners).

mrsweep

Shaolin_Monkey wrote: »

It's an investment trust so it's exactly the same as with ordinary shares. If you held them in a nominee account with a broker the dividends would, by default, be paid as cash to your brokerage account. The broker may have options to re-invest dividends automatically for a fee (see "dividend investing" in this table for some comparisons of costs). Other ways of investing include a savings plan provided by Blackrock themselves.

It's worth noting that as it's treated as a company share, buys are subject to 0.5% stamp duty.

I'd also add that Blackrock have a commodity income IT available which yields a bit more than the mining trust, and is a bit less volatile. It invests in a more diverse spread of commodity shares (oil companies and diversified commodities as well as miners).

Sorry to ask, but I'm not sure about the brokerage account bit. If I held this Blackrock trust (or any other) it is like holding shares - I get this bit. I have a SIPPl, and an ISA account, and a Trading account, all with Sippdeal. So would I be able to hold the Mining Trust, or the higher yielding Commodities Income Investment Trust in any (or all) of these, and have the dividend income automatically reinvested?

Shaolin_Monkey

If Sippdeal offer an automatic dividend re-investment service then yes. I don't use them so I couldn't confirm either way. Not all firms offer this service. From their Trading Account FAQ they don't make any mention of automatic re-investment:

"Any dividends that you may receive from your investments will be paid into the cash account of your Sippdeal Dealing Account. You are then free to choose what to do with the dividend payment. You may leave in your cash account, reinvest it or withdraw it from your dealing account cash account and have it paid into your nominated bank or building society account."

mrsweep

Shaolin_Monkey wrote: »

If Sippdeal offer an automatic dividend re-investment service then yes. I don't use them so I couldn't confirm either way. Not all firms offer this service. From their Trading Account FAQ they don't make any mention of automatic re-investment:

Yes I saw the help section and thought the same, but I will phone them to check. But assuming they cannot automatically reinvest dividends, then I understand that I will see my cash balance on my dealing account credited with dividends every so often. I assume I can then simply use that cash to invest in the fund that paid the dividend (or any other fund) - but then I would pay £10 dealing costs each time which is no good.