| A commodity hedge fund is a type of fund that | | | | of asset. |
| focuses solely on commodities. The net value of | | | | Commodity hedge funds typically invest in rice, |
| the assets of any such fund may run into the | | | | copper, crude oil, ethanol, silver, and gold. In most |
| billions of dollars, and participation is usually limited | | | | cases, investment is done in a wide variety of |
| to wealthy and sophisticated investors. | | | | assets which helps to offset any fluctuations in |
| As with any other type of investment, there is a | | | | the price of any one of them. Therefore if the |
| manager who is responsible for making the | | | | price of one of them falls, this loss is usually |
| decisions about which assets to invest in, what | | | | offset by the rise in the price of another one. |
| part of the fund's total capital to allocate to each | | | | This strategy greatly reduces the risks as |
| one, and when the get out of an investment. | | | | compared to investing in just a single commodity. |
| Investors participating in a hedge fund are | | | | If the price of that single asset were to change |
| typically not involved with the fund's day to day | | | | dramatically, then an investor focusing on just |
| operations; instead, they will rely on the expertise | | | | that one could lose his investment. Diversification |
| of the fund manager to profit from commodities. | | | | is just one reason why this method of |
| The fund manager does his best to maximize the | | | | investment is so attractive to investors. |
| profits that can be had from investing in this type | | | | |