Commodity mutual funds are professionally managed investment funds, specializing in commodities, or materials, which are used in other products. Wheat, sugar, soybean, coffee, gold, oranges, livestock, etc. are all commodities. The most attractive feature of the commodity mutual fund is that their prices tend to offer a very nice hedge against inflation, since their prices tend to rise in lockstep with it. Another benefit is that their investment returns aren’t tightly bound to equities or bonds. These two reasons make commodity mutual funds an important part of a well-rounded investment portfolio.
There is another option available for commodity mutual funds, which is called an ETF, or Exchange Traded Fund. ETFs can be purchased on the market, bypassing a fund manager. Most are passively managed (meaning they are tied to an index, which keeps the cost lower), and some carry tax benefits not afforded to regular mutual funds.
Hedge funds are probably the most widely known commodity mutual funds. However, one million dollars net worth is the standard qualification mark for hedge fund investments, which puts it out of the reach of many investors.
Commodities trading is unlikely to become depressed in the near future, for three major reasons. First, rapid development in China and India will drive the commodities market to new highs for some time, as materials will be in high demand during that growth. Second, diminishing food supply for a rapidly expanding world population ensures a healthy market in food commodities for some time to come. Finally, “peak oil” theory has brought greatly increased interest in new energy endeavors.
Self-made billionaires like Jim Rogers and George Soros have brought an awareness and popularity to the commodities trading market that is still growing each day. More available than hedge funds, commodity mutual funds may be the best option for many people, as they are open to all, and have an active management, with the ability to exploit market trends.