commodity funds - bad money after good?

deadpeasant

I started investing (lump sum) a bit more than 2 years ago, trying to be basically Tim-Hale-ish but tinkering a bit at the edges.

Now I have another lump to put in (a high-street bond has matured and savings rates are insulting, even wrapped as a cash ISA). I was unlucky to buy the commodities part of my Hale-ish portfolio when I did (I thought I was being clever buying after the Aug 2011 crash, but they've all just sunk further and further).

As a newish investor I have a psychological block putting more money into the funds that are the reddest in my portfolio, but doesn't this make sense? Surely the world's commodities aren't just going to sink until they start giving them away?

(Slightly similar thing with EM - they've been going down, but where else is the growth going to come from?)

I realise I have to do my own research, but the nice more-experienced folks here often come up with some insight that hadn't occurred to me.

Thanks as always for any comments.

jabba42

Commodities is the most hated of sectors now, all the red will turn around. IMO nearly the perfect time to buy.

kidmugsy

deadpeasant wrote: »

a high-street bond has matured and savings rates are insulting

Why on earth are you emotionalising this? An interest rate is just a price.

deadpeasant

kidmugsy wrote: »

Why on earth are you emotionalising this? An interest rate is just a price.

It's called a figure of speech. How about 'unattractive'? 'Appealingly challenged'?

dunstonh

I was unlucky to buy the commodities part of my Hale-ish portfolio when I did

Not really as it would typically only form a very small part of your overall portfolio. Even the highest risk portfolios wouldnt typically get above 10% allocation towards this area.

As a newish investor I have a psychological block putting more money into the funds that are the reddest in my portfolio, but doesn't this make sense? Surely the world's commodities aren't just going to sink until they start giving them away?

As commodities have gone down, you are probably under allocated now. So, some increase is almost certainly likely to be required. How much will depend on your overall allocations to other investment sectors (UK equity, US equity etc)

How much of your portfolio do you have allocated to commodities at the moment?

jamesd

Goodish places now, due to depressed prices: commodities, some of the EU countries, emerging markets (but looks likely that these can fall further). Maybe commercial property.

Baddish places, due to elevated prices: US (well above average cyclical P/E and risk from ending of central bank policy) and UK.

Goodish and baddish just means maybe consider higher weightings.

marathonic

My pension has recently been allocated as follows (I'm 30):

20% SE BAQ European
20% SE BAQ US
20% SE BAQ Pacific Rim
10% UK Smaller Companies
15% SE BAQ UK Equity
10% SE JPM EMERGING MKTS
5% SE JPM Natural Res

I wouldn't go above 10% in the JPM Natural Resources fund, even at 30. The above allocation was decided upon with the intention of doubling the Natural Resources exposure if it continues to drop as it has been doing over the next 6-12 months (probably reducing either Europe or the US).

deadpeasant

dunstonh wrote: »

As commodities have gone down, you are probably under allocated now. So, some increase is almost certainly likely to be required.... How much of your portfolio do you have allocated to commodities at the moment?

Thanks for replying and the common sense reminder to check my balances. I started with a lump sum a bit more than 2 years ago and have been shifting from savings to investments in instalments as Tim Hale suggested. The investments are all funds. I'm about 15 years from retirement.

unwrapped savings 20%
cash ISA, NSI certs 20%
social lending 5%
bonds (mainly IL gilt) 15%
UK equity 10%
ex-UK dev equity (now heavily US) 10%
EM equity 5%
world small cap (now heavily US) 5%
global property index 2%
commodities 3%

NoiSeTraDer

Commodities might be a good bet, and worth holding onto. You'd probably benefit, however, from diversifying into other asset classes. Property and shares might be good bets to add to that.

Don't think about trying to make a certain investment go from the red to the black, but focus on your overall portfolio of everything (which should include exposures to other risks).

robtgossard

Commodities are on a low right now and that’s precisely why investing on them with a long term perspective is the way to go. As the government clings tight to quantitative easing, bad money can’t be avoided and also its aftermath – economic turmoil. However what you can do is to preserve the value of your wealth by having some gold bullion in your portfolio. This is how it works – paper money sinks in a bad economic environment so all paper investments are likely to drown as well. Negative economic times are precisely when gold prices go up. If you look at gold as insurance against economic crisis, I won’t argue with your take.

bowlhead99

Well, we have been in "negative economic times", for a few years. Gold holdings acquired during these negative economic times (say at $1700-1900) have not worked out particularly well so far. Undoubtedly gold has less far to fall than it did then, because it's gone down by a chunk. It has certainly been available for much less than $1000/oz in the last decade and if you go back to '93 its average price was $360. Your first post on this site was on 26 April, when the price was over four times that and you were telling us all that it was it at its multi-year lows and it was time to be buying some.

Many of your posts since then have referred to gold. My observation is that it was 1470 on 26 April and touched 1190 last Friday, so a loss of 20% ish in a couple of months is perfectly possible from "multi year lows". Certainly people selling FTSE 100 at 6430 that day to hedge with gold, would be somewhat disappointed that gold fell and FTSE is still around 6430. And cash still pretty much buys the same amount of goods and services as it did two months ago.

Are other commodities "on a low too"? Judged against their highest points, yes. Also down are emerging markets funds and some currencies. We all have a view when to buy and sell but where they will go next is speculation. Oil is at $100 a barrel even though rivals such as Shale gas have leapt into existence in plentiful quantities. Oil is a commodity. Like Gold, it doesn't pay a dividend and costs money to store. Should I buy some crude at $100?

What does the high oil price and falling metals prices mean for energy intensive mining businesses? Not good, squeezes their profits. But if oil goes down in price, oil producing businesses will suffer. But then maybe the miners can produce other commodities more cheaply and supply vs demand means commodities could fall in price.

What other economic changes could happen? End of QE and higher interest rates are bad for miners as it destroys their cheaply-financed expansion plans, and bad for gold as an investment because it just sits there and doesn't pay interest. By contrast, continuing QE means inflation maybe, but only if the QE goes further than merely preventing deflation.

Are there any certainties?
1) only invest for the long term

2) if you don't know what to invest in, invest in everything but keep the risky/volatile stuff to a small portion of your portfolio.

3) if you don't know what 'risky/volatile' means, look at charts for it (or something like it) versus cash over a large number of periods of different lengths and remember what goes up can generally go down by the same amount.

Typically this would mean you don't have very much in commodities. I have some, but who am I to tell you you should or shouldn't, or how much you might like to have? Anonymous speculators on the internet are not the best source of impartial advice.