Post by Admin/YBB on Mar 31, 2021 6:33:50 GMT -6
COMMODITY FUNDS use futures [derivatives] for a variety of commodities [energy (oil, heating-oil, gasoline, natural-gas), metals (base, precious), softs (grains, coffee, cocoa, sugar, fruits, juices, cotton, meats, livestock)]. Precious-metal funds may hold physical metal (bullion) or be futures-based; it is not practical to hold other commodities, so those funds are futures-based. Factors that affect commodities include seasons, weather, geopolitical events, and local conditions/issues that may affect supplies. Commodities are volatile but have low CORRELATIONS among themselves, or with stocks, bonds, or other alternatives. Portfolio volatility is typically lower than the weighted average of those for its components due to varying cross-correlations, and multi-asset funds with stocks, bonds and alternatives are becoming popular.
A commodity can be in CONTANGO [with futures-curve up-sloping; indicative of normal supply & demand] or BACKWARDATION [with futures-curve down-sloping; indicative of tight supplies]. As these futures-based funds ROLL futures periodically, backwardation benefits the funds but contango imposes roll-costs. Most commodity funds generate partnership form K-1 after the yearend that make tax filings bit complex [and forget about filing early], but there are some commodity funds that generate regular 1099.
General commodity index funds have STATIC/FIXED weights for various commodities and rebalance on specific schedules; these include DBC [K-1], GSG [K-1; 70% energy], etc. Look into their compositions as commodity weights vary widely with some having large weightings for oil/energy. Some funds DYNAMICALLY select and weigh commodity sectors, PDBC [1099], COMT [1099], USCI [K-1], etc. Sometimes their rebalancing schedules may be out of sync with the fast-moving commodities markets.
A commodity can be in CONTANGO [with futures-curve up-sloping; indicative of normal supply & demand] or BACKWARDATION [with futures-curve down-sloping; indicative of tight supplies]. As these futures-based funds ROLL futures periodically, backwardation benefits the funds but contango imposes roll-costs. Most commodity funds generate partnership form K-1 after the yearend that make tax filings bit complex [and forget about filing early], but there are some commodity funds that generate regular 1099.
General commodity index funds have STATIC/FIXED weights for various commodities and rebalance on specific schedules; these include DBC [K-1], GSG [K-1; 70% energy], etc. Look into their compositions as commodity weights vary widely with some having large weightings for oil/energy. Some funds DYNAMICALLY select and weigh commodity sectors, PDBC [1099], COMT [1099], USCI [K-1], etc. Sometimes their rebalancing schedules may be out of sync with the fast-moving commodities markets.