Unit Trust that trades directly in commodities

stevedoc2003

Interesting thread. I have been doing small scale investments in soft comms for a few months. Just a few things I have picked up which might be useful:

1) The apparent volatility in ETF trackers commented on above: This is due to huge fluctuations in the bid-offer spread. These are often very high (e.g. up to 20% for soya oil which I have held) when trading opens and at the close. The spead rapidly contracts during the day, but artificially skews overnight prices, hence massive apparent dips. I can only assume that this is done to discourage trades during these times.

2) I am unclear why nobody mentioned the etfs that match the soft indicies (e.g. AIGG, AIGS, AIGA). These spread the exposure without gettin involved in energy.

3) I agree with concerns about $:£ risk as etfs are $ quoted. One means of avoiding this is to spreadbet the individual comms since you only bet on the change in $ price (in £ of course). It is very simple and many firms allow reasonably small stakes. The ability to set automated stops helps you sleep well too!

My own present strategy is to hold AIGG (etf grains), the eclectica fund (I think some exposure to agriculture stocks is desirable) and to hold small spreadbets on individual soft comms that appear to be in strong trends (currently wheat and soya oil).

wombat42_2

It is still rather complicated working out exactly what ETF to choose and they are all blunt instruments analogous to an equity tracker fund as they include garbage as well as good performers.

I have moved entirely into China unit trusts instead - it is a lot easier and they are rocketing like crazy !!!!!!!!. I let a fund manager do the selection work. China's success and the increasing price of commodities are closely connected anyway'.

To return to the original point of this thread. It would have been great if there was a unit trust that dealt directly into commodities without getting involved in the equity market but unfortunately it doesnt look like there is one.

Browntrout_2

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.

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

I do not agree, according to Citywire CYN.L is an Investment Trust which closed at 157p mid price on Friday, down from a high of ~190p in July and up from 51p - 5 year low point in June 03

JPM Natural Resources is a Unit Trust

Aug 02 -03 - 47.9%
Aug 03 -04 - 29.6%
Aug 04 - 05 - 50.6%
Aug 05 -06 - 40.9%
Aug 06 -07 - 24.6%

Turning £1000 into £5067 looks to have beaten CYN on every count?

Also as commodities increase I would expect well run mining companies profits to increase exponentially. For example if gold costs $450 dollar per ounce to produce at a certain mine, and the price rises from $600 to $750 the companies net profit doubles from $150 to $300 per ounce, simple eh?

In a falling market it is equally true though and if gold goes below $450 the mine is bankrupted!

wombat42_2

Browntrout wrote: »

Also as commodities increase I would expect well run mining companies profits to increase exponentially. For example if gold costs $450 dollar per ounce to produce at a certain mine, and the price rises from $600 to $750 the companies net profit doubles from $150 to $300 per ounce, simple eh?

In a falling market it is equally true though and if gold goes below $450 the mine is bankrupted!

Not quite. JPMNR fund got badly zapped by over 20% in the recent market dive, more than almost every unit trust as resource stocks were considered fairly high risk. In any event the unit price of commodity unit trusts is likely to largely mimic the share prices of the wider market. Also as commodities get scarcer, it may be that production costs rocket to get more difficult deposits out of the ground. Also there may be high upwards pressure on labour costs.