Have you ever heard of the saying, “don’t put all your eggs in one basket?” Well, any savvy investor knows this saying goes for maximizing your investment goals. Commodities, which are often overlooked, can make attractive trades when diversifying your portfolio. Don’t know where to begin? No worries, here’s eight and a half ways you can start investing in commodities!
The Passive Approach:
Buy the Index: Google commodity Index. There is no shortage of commodity ETFs to choose from, and most commodity ETFs hold futures contracts for exposure rather than the actual commodity itself. Buyer beware that holding futures exposes investors to potential “rolling risk” when commodity futures curves are in contango, where the ETF must pay to roll from the expiring front-month contract and into the next most actively traded month.
Buy the Active Index
If you’re someone who prefers hands on the wheel rather than autopilot but still likes the look and feel of an ETF, an actively managed commodity index ETF may be for you. We suggest taking a look at is SummerHaven Dynamic Commodity Index (“SDCI”).
Buy the Futures
If you’re looking at your portfolio thinking gold might be a good inflation hedge, it just takes a little bit of math to figure out how many contracts to buy to get your desired exposure. Plus, with the new micro contracts available, it is possible to get even more granular. The CME website has all the information you’re looking for, including the benefits of trading gold futures rather than ETFs.
Buy the Actual Commodity
Eh, probably the most complicated of all the options out there and unnecessary for most of us, but if you’re looking to be in the physical commodity trade, give the experts over RCM Ag Services a call.
The Active Approach
Invest with a Trend Following CTA: The original CTAs (think turtle traders) cut their teeth trading commodities at the old MidAM Exchange. Many of today’s CTAs still have a large exposure to commodity markets. Make sure to ask the portfolio manager how much of their portfolio is in commodities. If it’s not 40% or higher, you’re probably going to need to look elsewhere. Here are our picks to consider; EMC Capital Advisors Classic and Auspice Global Diversified.
There are a bunch of them out there trading everything from milk to soybeans to Malaysian palm oil. Discretionary traders are popular because some have lower minimum investments around $100k vs. trend followers, requiring up to $5m in trading level. You can find most of them in our managed futures database.
Build a Portfolio
Do you like solving puzzles? Combing through databases looking for diamonds in the rough? Mix a systematic approach with a diversified trader? If so, building a portfolio of commodity traders could be for you. There are lots to consider here, including minimum investments, leverage, trading approach, and, of course, manager due diligence. We’ve already done the heavy lifting for you, so it’s best to give us a call to discuss the various investment options.
Invest in a Multi-Manager Fund
RCM has teamed up with the guys over at Mutiny Funds to launch multi-manager funds stacking commodity trends, long volatility, gold, bitcoin, and beta stocks and bonds. The deftly named Cockroach Fund gives investors exposure to markets across the globe. Obsessed with path dependencies, this fund constantly searches for diversification and dynamically rebalances monthly. The fund is available to accredited investors at a reasonable minimum of $100,000
Eight and a Half
Call your RCM broker and ask what is best for you. We’ll review your investment portfolio, make recommendations, and when it comes time to invest, our all-star client relations team will efficiently guide you through the onboarding process.