Unit Trust that trades directly in commodities

wombat42_2

JP Morgan Natural Resources invests in mining companies etc. But just because commodity prices zoom doesnt necessarily mean that JPMNR will zoom as the mines may have increasing overheads.

It is preferable and cleaner to invest in commodities direct, such as using ETFs. But there are many different commodities and you need to be an expert to know what you are doing. Therefore it would be excellent if there was a unit trust that traded directly in commodities and a fund manager took the investment decisions for you.

Does anything like this exist ?

I see there is an investment trust that probably outperforms JPMNR which is:
City Natural Resources High Yield Trust plc (CYN.L)

jon3001

wombat42 wrote: »

JP Morgan Natural Resources invests in mining companies etc. But just because commodity prices zoom doesnt necessarily mean that JPMNR will zoom as the mines may have increasing overheads.

It is preferable and cleaner to invest in commodities direct, such as using ETFs. But there are many different commodities and you need to be an expert to know what you are doing.

Well - you could just stick it in an commodities index:
http://www.etfsecurities.com/csl/etfs_all_commodities.asp

Or you can choose sectors rather than individual commodities. For instance if you think China's growth will increase demand for energy and industrial metals, driving up the price of limited supplies you could consider these:
http://www.etfsecurities.com/csl/etfs_energy.asp
http://www.etfsecurities.com/csl/etfs_industrial_metals.asp

Fundamentally it's all about supply and demand. For instance I was watching an article on CNN yesterday about soaring milk prices. Apparently China's rich are getting a taste for dairy products pushing up demand.

No doubt you've heard stories in the past how in British dairy farmers are being squeezed by supermarkets. What incentive is there for new dairy farmers to get into the business? Or for existing farmers to expand and invest in their operations? More likely they're getting out. If that's going on world wide then supplies are going down.

Lower supplies + increased demand = soaring commodity prices.

wombat42 wrote: »

Therefore it would be excellent if there was a unit trust that traded directly in commodities and a fund manager took the investment decisions for you.

Does anything like this exist ?

Jim Roger's book says that even in the USA they're rare - only 2. So I guess we've got even less chance here But if you find anything be sure to let us know! Unfortunately (or maybe fortunately for the astute investor ) commodities seem to be underdeveloped and overlooked and an asset class.

He does refer to something called 'Commodity Pools' which I understand are limited companies which will invest clients' money. Might not be suitable for the typical retail investor though with large investment requirements etc. Something for you to google/research though...

wombat42 wrote: »

I see there is an investment trust that probably outperforms JPMNR which is:
City Natural Resources High Yield Trust plc (CYN.L)

Seems to invest in mining and oil/gas companies again...
http://www.trustnet.co.uk/it/funds/?fund=39030

Yield's only 1.6% - maybe pushed down as the companies's share price rocketed?

wombat42_2

jon3001 wrote: »

Well - you could just stick it in an commodities index:
http://www.etfsecurities.com/csl/etfs_all_commodities.asp

Or you can choose sectors rather than individual commodities. For instance if you think China's growth will increase demand for energy and industrial metals, driving up the price of limited supplies you could consider these:
http://www.etfsecurities.com/csl/etfs_energy.asp
http://www.etfsecurities.com/csl/etfs_industrial_metals.asp

Thanks but having a commodity index etf is analagous to having an equity tracker but in the case of commodities there are many commodity index etfs for the different sectors (although you do have the vanilla flavoured index you mention (did it really go down over 20% in one day ?)) and it is still complicated working out which index etfs to use and you would need to keep changing all the time to keep up with current trends.

I am thinking at present that as the success of commodities is strongly linked to the success of China, why not just invest in a China unit trust instead - which would make life simpler and probably give similar returns ? This is what I am currently doing.

I think there is a dire need for a direct commodities unit trust and if there was one i would invest in one but otherwise I think life is too complicated to get into commodities and JPMNR is slightly problematic in investing in commodity companies not commodities direct.

I will check out commodity pools but that will still be complicated if they work only on individual coommodity sectors. Also they would need to allow ISA/PEP/SIPP investments to suit me.

jon3001

wombat42 wrote: »

having a commodity index etf is analagous to having an equity tracker but in the case of commodities there are many commodity index etfs for the different sectors (although you do have the vanilla flavoured index you mention (did it really go down over 20% in one day ?))

I'm sure that -20% is wrong. Now today they're saying +28%! I've heard they're volatile but that's riduculous! Esp. for an index.

wombat42 wrote: »

I am thinking at present that as the success of commodities is strongly linked to the success of China, why not just invest in a China unit trust instead - which would make life simpler and probably give similar returns ? This is what I am currently doing.

Probably worth keeping at least a casual eye on commodity prices then. You see: they're on opposite sides of the business cycle (hence negatively correlated with equities)

1. Low commodity prices = low overheads for companies, boosting growth
2. High commodity prices = lower profits, hurting growth.

So if demand keeps rocketing but supplies can't keep up then at some point you'd expect that to curb China's growth. They might fully float or revalue yuan at that point to get more purchasing power and spur on another growth spurt. Could be a good time to reevalute your holdings at that point.

wombat42_2

jon3001 wrote: »

I'm sure that -20% is wrong. Now today they're saying +28%! I've heard they're volatile but that's riduculous! Esp. for an index.

I am keeping real time tabs on CYN.L and AIGC.L (ALLCOMMODITIES/ETFS) uisng Yahoo as they may be of interest to me sometime in the future. One good thing about AIGC.L is that it has loads of agriculture and softs in there which are supposed to be where its at.

Incidentally AIGC.L is currently 29.23% up so there must be an error in there somewhere.

http://www.londonstockexchange.com/NR/rdonlyres/A36BAB03-1962-421C-AC61-CE3E098BC996/0/ETFSAllCommoditiesFactSheet.pdf

jon3001

wombat42 wrote: »

One good thing about AIGC.L is that it has loads of agriculture and softs in there which are supposed to be where its at.

Growing world population, biofuels, coffee makers wanting to get into the China market, etc... Could be good stuff.

wombat42_2

jon3001 wrote: »

Growing world population, biofuels, coffee makers wanting to get into the China market, etc... Could be good stuff.

Will definately keep an eye on it and maybe invest using HL.


http://www.etfsecurities.com/csl/etfs_all_commodities.asp

I dont know why JPMNR has very little agriculture and softs in it although Henderson did mention in a recent interview that they were a good thing,

jon3001

wombat42 wrote: »

I dont know why JPMNR has very little agriculture and softs in it although Henderson did mention in a recent interview that they were a good thing,

Browsing around and I've found this agriculture fund:
http://www.h-l.co.uk/fund_research/security_details/sedol/B1XGDS0.hl

It's very new though and there's no details of what geographical regions or agricultural sectors you'd have exposure to. Could be a useful counterbalance to JPM NR but maybe another one to just keep an eye on for now.

wombat42_2

jon3001 wrote: »

Browsing around and I've found this agriculture fund:
http://www.h-l.co.uk/fund_research/security_details/sedol/B1XGDS0.hl

It's very new though and there's no details of what geographical regions or agricultural sectors you'd have exposure to. Could be a useful counterbalance to JPM NR but maybe another one to just keep an eye on for now.

CF Eclectica Agriculture invests in equities not direct commodities which i think is preferable.

I would just seriously consider AIGC.L and avoid jpmnr altogether. It gets too involved investing separately in individual commodity sectors. I hope that I can stick to the same portfolio for the long term (5 years plus) without chopping and changing.

wombat42_2

AIGC.L tracks the Dow Jones-AIG Commodity Index which is just one of several commodities indexes. It doesnt seem to have done that well over the last year or so.

http://finance.yahoo.com/charts#chart1:symbol=^djc;range=1y;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined

I think part of the problem is that particular tracker is traded in USD is affected by the £ to $ exchange rate.

Thats the problem with any type of tracker, you might have some dross in the mix so my original desire for a unit trust investing directly into commodities would have been great but it looks like commodity trackers arent a good enough substitute.

Maybe there will be a unit trust investing directly in commodities in the UK at some point !

wombat42_2

Just spotted that the Goldman Sachs Commodity Index (GSCI®) is in pound sterling but it is way too high in energy.

http://www2.goldmansachs.com/gsci/insert.html