Commodity index funds

Commodity index funds enable people to invest their money in the commodities market and profit from it, which is otherwise too risky for most. Today, there are quite a few excellent and high-quality index-based commodity funds that provide the ideal opportunity to profit from the commodities market. Commodity index funds are not actively managed as in regular managed funds. Actually, they are computer-managed. They are based on monthly closing prices of a fixed-weight portfolio of the nearby futures and forwards contract month of international commodity markets.

Benefits of commodity index funds

• Enable the investor to directly invest in commodities, as opposed to natural resource companies.
• Investors get protection from inflation, especially the rising prices.
• High investment growth when there is worldwide economic growth.
• Strong correlation with change in the rate of inflation.
• There is minimal or negative correlation to stocks and bonds. When stocks and bonds go down, commodity index funds are likely to go up. But this does not necessarily mean that when stocks and bonds rise, commodity index funds go down.

Here are a few major commodity index funds

Goldman Sachs Commodity Index (GSCI)
• Dow Jones - AIG Commodity Index
• Jim Rogers International Commodities Index
• Oppenheimer Real Asset Fund

Goldman Sachs Commodity Index: It is a composite index of commodity sector returns, representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment.

Dow Jones - AIG Commodity Index: It is composed of futures contracts on 19 physical commodities. Commodity futures contracts specify a delivery date for the underlying physical commodity. In order to avoid delivery and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased.

Jim Rogers International Commodities Index: It was developed by Jim Rogers to be an effective measure of the price action of raw materials on a worldwide basis. It represents the value of commodities in the global economy, like agricultural products (wheat, corn and cotton), energy products (crude oil, gasoline and natural gas) to metals and minerals (gold, silver, aluminum and lead).

Oppenheimer Real Asset Fund: Oppenheimer Real Asset Fund was the first of its kind providing retail investors with exposure to commodities. Through investments in securities whose value is linked to the commodity markets, investors receive full dollar-for-dollar exposure to this asset class.