| Advantages of managed funds | | | | entry investment, which is manageable however |
| Owning the units of the fund house gives lot of | | | | investing in commodities is not for everyone. |
| advantages to the holder in commodity trading | | | | Researched and Good Opportunities |
| like instant exposure to commodities in the | | | | When you pool your money with other investors, |
| market the fund is targeting, diversification, better | | | | you gain access to some investments that you |
| asset allocation, professional management, the | | | | would not be able to purchase if you invested by |
| ability to make an initial investment with a minimal | | | | yourself. Some of these opportunities include initial |
| amount, and greater access to opportunities in | | | | public offerings (IPOs) and structured debt. |
| the commodities markets. | | | | Although this benefit is more important with |
| Greater Exposure | | | | non-commodity mutual funds, there are some |
| You immediately become the owner of all the | | | | circumstances in which it can be a nice bonus. This |
| companies that your fund owns. For this reason, | | | | benefit t is something to keep in mind when you |
| you gain instant exposure to a broad spectrum of | | | | are trying to decide between mutual fund |
| companies, from energy to precious metals and | | | | investing and do-it-yourself investing. |
| from industrial metals to transportation companies. | | | | Drawbacks of Mutual Funds |
| Furthermore, when you make subsequent | | | | Management Fees |
| investments in the mutual fund, you increase your | | | | The biggest knock against mutual funds is the |
| ownership of each company and gain an even | | | | high fees they charge investors for professionally |
| bigger foothold in the commodities markets in | | | | managing their money. Many commodities mutual |
| which each company operates. | | | | funds assess an annual fee in excess of 1.00 |
| DIVERSIFICATION | | | | percent or 1.50 percent. Thus, if you earn 10 |
| One of the Main benefits of investing in mutual | | | | percent in a mutual fund that charges a 1.40 |
| funds is that you get to diversify as you own a | | | | percent fee, you pay 14 percent of your gain for |
| part in a hand full of companies. When you invest | | | | investing in that fund. Let's take this example |
| in individual companies, you are exposed to two | | | | further. If you earned 2.80 percent in your fund, |
| types of risk: company-specific risk and | | | | you are given a bill for 50 percent of the earnings |
| non-company- specific risk. Company-specific risk | | | | you have made. Note that if your fund losses |
| arises from specific actions of management that | | | | money, you still have to pay the fee. Taking a |
| are unique to a firm, it. Unfortunately, investors | | | | loss in your account and paying someone on top |
| are typically unable to minimize | | | | of that for poor performance is an obvious |
| non-company-specific risk through diversification | | | | problem inherent in mutual funds. Many investors |
| since investing in multiple companies does nothing | | | | and financial advisors do not invest in mutual funds |
| to control the ways in which the market can | | | | because of the high fees and instead employ |
| affect a portfolio. There are strategies that many | | | | index based mutual funds or exchange-traded |
| hedge funds employ to control market risk, such | | | | instruments such as exchange-traded funds |
| as selling short a market index fund. Nonetheless, | | | | (ETF'S) and exchange-traded notes (ETN'S). |
| diversification is very important with commodities | | | | Benchmarking |
| investing, and mutual funds offer this benefit. | | | | If you had two choices of investments, option A, |
| BETTER ASSET ALLOCATION | | | | which generated a return of 10 percent and |
| Not to be confused with diversification, which | | | | assessed an annual fee of 1.25 percent, and |
| deals only with companies in a single sector such | | | | option B, which generated a return of 11 percent |
| as energy, asset allocation is about dividing your | | | | and assessed an annual fee of 0.50 percent, which |
| investment among the different commodities | | | | one would you select? The obvious answer is |
| markets. Thus, if you invest in a mutual fund that | | | | option B. With this example, option A is a typical |
| holds only energy companies, your investment will | | | | mutual fund and option B is an equivalent index |
| be diversified but not properly allocated since you | | | | fund. Much research has been done on money |
| will have omitted other commodities markets, | | | | managers and how well they perform against an |
| such as precious metals and industrial metals. The | | | | appropriate benchmark. Most research has |
| more commodities markets you invest in, the | | | | concluded that the majority-approximately 80 |
| better your asset allocation and the more ideal | | | | percent-of money managers do not outperform |
| your risk and return profile. | | | | their benchmarks. Furthermore, money managers |
| Skilled and Experienced Management | | | | who do outperform their benchmarks in any |
| When you invest in commodities, you can use the | | | | specific year have a lower probability of |
| do-it-yourself approach, in which you do all the | | | | outperforming that benchmark the next year. |
| research and make all the decisions, or employ | | | | Over any holding period there will be some |
| professionals who have expertise in this area. | | | | money managers who outperform their |
| Investing in commodities companies is not the | | | | benchmarks, but most will not. The number of |
| same as investing in blue-chip companies. You | | | | money managers who outperform the market will |
| must be more skilled and spend more time | | | | be no greater than predicted by standard |
| researching companies, markets, and trends when | | | | mathematical probability. It is simply the law of |
| you invest in commodities companies. This | | | | large numbers accompanied by statistical outliers. |
| self-directed approach will save you money since | | | | So what does this mean to you as a potential |
| you will not have to pay someone else to do it | | | | commodities investor? It means that you need to |
| for you, but it is not for everyone. For the typical | | | | do your homework about each mutual fund |
| investor who simply wants to gain extra | | | | before you start trading in commodities through |
| exposure to commodities, using a professional | | | | mutual funds. Secondarily, it means that you |
| manager or index investment is the preferred | | | | should consider whether investing in a mutual fund |
| approach. | | | | is the smart choice or whether you should invest |
| INVESTOR-FRIENDLINESS | | | | by using an index-based mutual fund or exchange |
| Most commodity mutual funds have very minimal | | | | traded fund or note. |