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Commodity Futures are attractive as diversifiers: they tend to have
stock-like returns, but tend to be relatively uncorrelated with other asset classes.
In fact, Commodity Futures is the best diversifier known to us. For
more information about Commodity Futures, see
here.
There are several very similar investment options available. Which is
best?
The funds are listed in rough order of our overall preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
 | Vanguard Commodity Strategy Fund Admiral Shares (VCMDX).
E/R: 0.21%. Basically, this fund invests in futures and futures
derivatives designed to track the Bloomberg Commodities Index Excess Return.
It invests enough in these futures to simulate full investment in
Commodities. A smaller portion of the portfolio is set aside as
collateral. The remaining cash is invested in short-term TIPS. Actually, tracking the index closely isn't a goal of the fund.
The fund tries to add value by NOT slavishly tracking the index. For
example, it
tries to roll its futures on days other than those specified by the index.
Further, it uses a "variable maturity" strategy on its futures exposure,
aiming to target maturities which suggest higher future returns.
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 | DFA Commodity Strategy Portfolio (DCMSX). E/R: 0.30%.
Basically, this fund invests
in futures and futures derivatives designed to track the Bloomberg Commodities
Index Excess Return. It invests enough in these futures to simulate full investment in
Commodities. A smaller portion of the portfolio is set aside as
collateral. The remaining cash is invested in short-term investment
grade bonds. Actually, tracking the index closely isn't a goal of the fund.
The fund tries to add value by NOT slavishly tracking the index. For
example, it
tries to roll its futures on days other than those specified by the index.
Further, it uses a "variable maturity" strategy on its bond and
futures exposure,
aiming to target maturities which suggest higher future returns.
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 | Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF (BCI). E/R: 0.26%.
Basically, this ETF invests in commodities futures in its attempt to track the
Bloomberg Commodity Index Excess Return. It invests the
collateral in short-term investment-grade fixed income securities.
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 | GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB). E/R: 0.25%.
Basically, this ETF invests in commodities futures in its attempt to track the
Bloomberg Commodity Index Excess Return. It invests the
collateral in short-term investment-grade fixed income securities.
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 | Aberdeen Standard Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (BCD). E/R: 0.30%.
Basically, this ETF invests in commodities futures in its attempt to track the
Bloomberg Commodity Index 3 Month Forward Index. It invest the
collateral in short-term investment-grade fixed income securities.
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 | Parametric Commodity Strategy (EIPCX).
E/R: 0.65%. This fund regularly rebalances back to a strategic
allocation to the various commodities, hoping to realize a
rebalancing bonus by doing so.
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 | Invesco DB Commodity Index Tracking Fund (DBC).
E/R: 0.85%. This Exchange-Traded fund invests in commodities
futures in its attempt to track the Deutsche Bank Liquid Commodity
Index – Optimum Yield Diversified Excess Return, a custom commodity
index created by Deutsche Bank. It invests the collateral in
short-term bonds.
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 | United States Commodity Index Fund (USCI). E/R: 1.07%.
Basically, this ETF invests in commodities futures in its attempt to track the
Summerhaven Dynamic Commodity Index -
Excess Return Index, a custom commodity index created by Summerhaven
Indexing. It invest the collateral in short-term treasuries.
The index this fund tracks tries to shift to commodities which
exhibit traits of having low inventories, which, they believe,
suggests good future returns on those futures.
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 | iShares S&P GSCI Commodity-Indexed Trust (GSG). E/R: 0.75%.
Basically, this ETF is designed to track the S&P Goldman Sachs Commodity Index -
Total Return Index. It
invests enough in CERFs (i.e., futures designed to track the GSCI - Excess
Return Index) to simulate full investment in Commodities.
A smaller portion of the portfolio is set aside as collateral. The
remaining cash is presumedly invested in short-term bonds. We don't like that it tracks the GSCI instead of the
Bloomberg CI (the GSCI is HEAVILY weighted in energy -- basically, the GSCI
is largely a play on energy futures -- the Bloomberg CI is much more
broadly diversified across various commodity classes).
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 | Credit Suisse Commodity Return Strategy Fund Institutional (CRSOX). E/R:
0.80%. Minimum initial investment: $250,000. This fund follows a similar strategy as PCRIX
below, investing in futures derivatives designed to track the Bloomberg
Commodities Index, but it invests the
collateral in short-term Treasury bonds instead of TIPS.
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 | AQR Risk-Balanced Commodities Strategy Fund (ARCIX). E/R:
1.03%. Minimum initial investment: $250,000. This fund is
actively managed in an attempt to have higher risk-adjusted returns than the Bloomberg
Commodities Index. It does this by balancing the risk contributed by
each category of commodities.
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 | PIMCO CommodityRealReturn Strategy Fund Institutional Shares (PCRIX). E/R:
0.74%.
Basically, this fund invests in futures derivatives designed to track the
Bloomberg Commodities Index Excess Return. It invests enough in these
futures to simulate full investment in Commodities. A smaller portion
of the portfolio is set aside as collateral. The remaining cash is
invested in TIPS.
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 | ETRACS Bloomberg Commodity Index
Total Return ETN Series B (DJCB). E/R: 0.50%.
This is an Exchange Traded Note (ETN). An ETN is similar to an ETF (for
more information on ETFs,
see here) in that it attempts to track an index and is
traded on an exchange. HOWEVER, it is a bond which is backed only by the
full faith and credit of the issuer, which in this case is UBS AG.
As such, we judge that it has unacceptable credit risk, regardless of the
financial soundness of the issuer (i.e., the credit risk, however small, is
unacceptably high given that it is totally undiversified).
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 | ETRACS Bloomberg Constant Maturity
Commodity Index Total Return ETN (UCIB). E/R: 0.55%.
This is an Exchange Traded Note (ETN). An ETN is similar to an ETF (for
more information on ETFs,
see here) in that it attempts to track an index and is
traded on an exchange. HOWEVER, it is a bond which is backed only by the
full faith and credit of the issuer, which in this case is UBS AG.
As such, we judge that it has unacceptable credit risk, regardless of the
financial soundness of the issuer (i.e., the credit risk, however small, is
unacceptably high given that it is totally undiversified).
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 | iPath Bloomberg Commodity Index Total Return ETN (DJP). E/R: 0.70%.
This is an Exchange Traded Note (ETN). An ETN is similar to an ETF (for
more information on ETFs,
see here) in that it attempts to track an index and is
traded on an exchange. HOWEVER, it is a bond which is backed only by the
full faith and credit of the issuer, which in this case is Barclay's Bank PLC.
As such, we judge that it has unacceptable credit risk, regardless of the
financial soundness of the issuer (i.e., the credit risk, however small, is
unacceptably high given that it is totally undiversified). |
You generally should not hold commodities futures in a taxable account.
The asset class is very tax-inefficient. However, if you did, our
preference would be nearly the same as for a retirement account. The only
difference would be more preference for DBC, because the gains from its
futures contracts are treated as being 60% long-term capital gains.
Some suggest that one of the ETNs might make a good choice in a taxable
account. Even if it weren't for their unacceptably high credit risk, we
judge that there is significant question regards their tax efficiency. It
MAY be the case that they are spectacularly tax-efficient (they don't make any
payouts until maturity, so if you hold it for at least one year, 100% of any
profits you make are taxed at the preferentially low long-term gains tax rate).
HOWEVER, while the IRS hasn't ruled specifically on this issue, it has ruled on
taxation of one particular type of ETN -- currency ETNs. And the IRS
ruling was that currency ETNs did not get the favorable tax treatment that ETN
issuers brag about for ETNs in general. We wouldn't be surprised if the
taxation of other ETNs follows the precedent that the IRS set for currency ETNs.

This web page contains the current opinions of Eric E. Haas at the time it is
written—and such opinions are subject to change
without notice. This web page is intended to serve two purposes:
 | To educate the public; and |
 | To provide disclosure of Mr. Haas' opinions to prospective clients.
We believe that prospective clients are well-served by being made aware of
what they are buying—and what they are buying is advice
that is based on these opinions. |
We believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to
contact us. |