Vanguard Announces Plans to Launch Commodities Fund

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klaus14
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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by klaus14 » Fri Jun 21, 2019 4:26 pm

HEDGEFUNDIE wrote:
Sun Apr 21, 2019 12:31 am
james22 wrote:
Sun Apr 21, 2019 12:07 am
Is Inflation Dead?

https://www.bloomberg.com/magazine/businessweek/19_18
Great article.

The 10 year return of LTPZ (long term TIPS) has lagged EDV (ultra long Treasuries) by something like 4% per year.

The question for those devoting a sizable portion of their portfolios to inflation-fighting assets is: can you stomach this level of opportunity cost for the next 10 to 15 years?
30-year Breakeven Inflation Rate is at 1.90. FED is targeting 2.20%
(.20% difference due to different inflation metrics they track)

Breakeven was around 2.50 10 years ago. This is where EDV outperformance comes from.
Do you believe we'll have less than 1.90? Why?

In other words, low (lower than FED target) inflation expectations are already priced in.

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Re: New Vanguard Commodities Fund --Your Thoughts?

Post by azanon » Sat Jun 22, 2019 10:23 am

klaus14 wrote:
Fri Jun 21, 2019 3:54 pm
azanon wrote:
Thu Apr 11, 2019 11:07 am
Yeah the quick 101 on how these work in a portfolio for those that use them, is the expected return (in isolation) is roughly just the inflation rate. And then the bonus return comes from regularly re-balancing the position of an uncorrelated, asset class. So hopefully even those that have a commodities position in their portfolio would be willing to concede that the investment looks poor when analyzed in isolation.
Why not just use Gold instead? Gold provides the same benefits but it's more robust. We can't estimate oil/wheat demand/supply better than the market. But we know that people flock to gold when they want to run away from stocks/bonds/cash.
I personally use a 50/50 split of gold and commodities basket (which also, btw, usually has some gold too), admittedly because I'm trying to mirror Ray Dalio and Bridgewater's approach but yeah sure, I have no major quarrel with someone who just wants to use gold exclusively for commodities.

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Re: New Vanguard Commodities Fund --Your Thoughts?

Post by vineviz » Sat Jun 22, 2019 12:17 pm

azanon wrote:
Sat Jun 22, 2019 10:23 am
klaus14 wrote:
Fri Jun 21, 2019 3:54 pm
azanon wrote:
Thu Apr 11, 2019 11:07 am
Yeah the quick 101 on how these work in a portfolio for those that use them, is the expected return (in isolation) is roughly just the inflation rate. And then the bonus return comes from regularly re-balancing the position of an uncorrelated, asset class. So hopefully even those that have a commodities position in their portfolio would be willing to concede that the investment looks poor when analyzed in isolation.
Why not just use Gold instead? Gold provides the same benefits but it's more robust. We can't estimate oil/wheat demand/supply better than the market. But we know that people flock to gold when they want to run away from stocks/bonds/cash.
I personally use a 50/50 split of gold and commodities basket (which also, btw, usually has some gold too), admittedly because I'm trying to mirror Ray Dalio and Bridgewater's approach but yeah sure, I have no major quarrel with someone who just wants to use gold exclusively for commodities.
I don't have a strong opinion on this, but there are some who argue that gold tends to behave more like a currency than a commodity. The sensitivity of gold and other precious metals to interest rates is similarly high, but silver historically has had a higher inflation beta than gold and therefore be more effective as an inflation hedge in a portfolio.

Conversely, true commodity futures (e.g agriculture, energy, and base metals) offer similar inflation beta to gold but without the correlation to interest rates.

It seems to me that investors who view inflation as a significant risk should probably primarily own some combination of long-term TIPS and a globally diversified equity portfolio and call it a day. Allocating some portion of their portfolio to a broad basket of commodities and silver, plus perhaps some local-currency ex-US bonds, might help offset the short-run impact of inflation on nominal bonds and/or equities.
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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by heyyou » Sat Jun 22, 2019 8:17 pm

My inflation protection includes delaying SS to age 70, staying at the job that offered a pension (no-COLA but an income source outside of the portfolio), and keeping necessary expenses lower by living in a lower cost area (that we were already living in at retirement), and knowing that over long periods equities will outgrow inflation. We expect to adapt to our real income, as retirement progresses, with emphasis on expectations and adaptation instead of allocation yoga.

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by hdas » Sun Jun 23, 2019 8:26 am

When is this fund launching?
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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New Vanguard Commodity Fund

Post by Time2Quit » Tue Jun 25, 2019 9:44 am

[merged this post and its replies into the existing topic - moderator prudent]

Vanguard just announced a new commodity fund with a 0.2% expense ratio.

To make this actionable:

When would someone consider a adding fund like to their portfolio and at what % of the AA?
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Re: ew vangurd Commodity Fund

Post by 22twain » Tue Jun 25, 2019 9:57 am

[no longer applicable]
Last edited by 22twain on Tue Jun 25, 2019 10:33 am, edited 1 time in total.
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Re: ew vangurd Commodity Fund

Post by SpringMan » Tue Jun 25, 2019 10:03 am

Vanguard sent us an email regarding this fund today. In my opinion it is not for us. 50K could be better deployed in something easier to understand.
Best Wishes, SpringMan

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Re: ew vangurd Commodity Fund

Post by hdas » Tue Jun 25, 2019 1:19 pm

SpringMan wrote:
Tue Jun 25, 2019 10:03 am
Vanguard sent us an email regarding this fund today. In my opinion it is not for us. 50K could be better deployed in something easier to understand.
Can you copy paste the msg?............50k seems very reasonable. 5% of 1 mili portfolio. :greedy
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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by SquawkIdent » Tue Jun 25, 2019 1:26 pm

hdas wrote:
Sun Jun 23, 2019 8:26 am
When is this fund launching?
+1

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by SquawkIdent » Tue Jun 25, 2019 1:28 pm

SquawkIdent wrote:
Tue Jun 25, 2019 1:26 pm
hdas wrote:
Sun Jun 23, 2019 8:26 am
When is this fund launching?
+1
Just found it...

https://investor.vanguard.com/mutual-fu ... view/vcmdx

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hdas
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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by hdas » Tue Jun 25, 2019 1:29 pm

SquawkIdent wrote:
Tue Jun 25, 2019 1:26 pm
hdas wrote:
Sun Jun 23, 2019 8:26 am
When is this fund launching?
+1
Saw this in another thread that should be merging to this one soon.

No info about benchmark and portfolio yet. :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by hdas » Wed Jun 26, 2019 8:06 am

Here’s the gist:
The fund's benchmark is the Bloomberg Commodity Total Return Index, a diverse and widely used commodity futures index. However, the fund will differ from its benchmark in two ways. First, the fund will seek to increase inflation protection by holding a portion of its collateral in short-term TIPS along with T-bills. Short-term TIPS offer a high degree of correlation with inflation over the short term, making them well-suited as a shorter-term inflation hedge. Second, rather than holding near-month futures contracts and rolling contracts over a five-day period, the fund will attempt to take advantage of liquidity premiums by holding contracts further from expiration and avoiding congested trading periods by trading over a longer time horizon during the monthly roll process.
Cheers :greedy
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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by schachtw » Wed Jun 26, 2019 8:32 am

Vanguard Commodity Strategy Fund
Ticker: VCMDX

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by lazyday » Wed Jun 26, 2019 9:46 am

Has anyone found a way to estimate the insurance premium, or guess if it’s above or below 0, or otherwise decide if commodity futures are “expensive”?

If you look at long term data, commodity futures had excellent returns and low correlation to other assets. But if they are too popular an investment today, then returns might be low enough that they aren’t worth owning.
Keynes' insight was that commodity futures allow operating companies to hedge their commodity price exposure, and since hedging is a form of insurance, hedgers must offer commodity futures investors an insurance premium.
https://faculty.fuqua.duke.edu/~charvey ... modity.pdf

If too much money is chasing long futures, then it will be the investors who pay, not industry.

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Vanguard Commodity Fund- Why?

Post by PoultryMan » Wed Jun 26, 2019 10:02 am

[Thread merged into here, see below. --admin LadyGeek]

Help me understand where you can make a case for this fund? I genuinely dont know where this would fit into a portfolio other than a bear market fund? I cant seem to find much information on it.

Im curious if anyone would feel this is a part of a portfolio and what their reasoning would be?

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Re: Vanguard Commodity Fund- Why?

Post by Coato » Wed Jun 26, 2019 10:10 am

Stagflation protection, theoretically.

If you don't have enough protected in TIPS, then only Emerging Market Bonds, Gold and Commodities might provide positive returns. This is a theory that might be explained away by the singularity of going off the gold standard and the oil embargo, so who knows.

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Re: Vanguard Commodity Fund- Why?

Post by Rick Ferri » Wed Jun 26, 2019 10:18 am

Vanguard created this fund to lower the cost for investors who want a commodities fund and will go elsewhere to get it and pay a considerably higher cost. It's the same reason they created a hedge international bond fund several years ago. It doesn't mean the strategist's at Vanguard think you should have this fund or invest in every Vanguard fund that comes out.

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Re: Vanguard Commodity Fund- Why?

Post by PoultryMan » Wed Jun 26, 2019 10:30 am

Rick: Thanks for the response. I was just curious if this is similar to a "Prudent Bear" type fund.

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Re: Vanguard Commodity Fund- Why?

Post by Angst » Wed Jun 26, 2019 12:00 pm

Rick Ferri wrote:
Wed Jun 26, 2019 10:18 am
Vanguard created this fund to lower the cost for investors who want a commodities fund and will go elsewhere to get it and pay a considerably higher cost. It's the same reason they created a hedge international bond fund several years ago. It doesn't mean the strategist's at Vanguard think you should have this fund or invest in every Vanguard fund that comes out.

Rick Ferri
Hi Rick,

Not trying to contradict you but I will speculate a bit further regarding Vanguard's possible plans for this fund; I think the jury is still out. I can't help wonder if this fund is going to be added into Vanguard's Target Date Funds. Here are a couple things I've run into:

SpringMan wrote in another recent thread on Vanguards new VCMDX Commodities Fund:
SpringMan wrote:
Tue Jun 25, 2019 10:03 am
Vanguard sent us an email regarding this fund today. In my opinion it is not for us. 50K could be better deployed in something easier to understand.
More important, consider GarlandWhizzer's OP in a different new thread referring to a (May 2019) Vanguard paper on using Commodities & TIPS for inflation protection:
garlandwhizzer wrote:
Mon Jun 24, 2019 7:13 pm
The article discusses inflation and protection against both expected and unexpected inflation. Some takeaways: Broad commodity exposure and ST TIPS offer the best short term protections against unexpected inflation. REITS, Gold, and longer duration TIPS offer less protection. Equity offers some protection long term but not short term. Cash protects better than nominal bonds from expected inflation. Like everyone else Vanguard doesn't see increasing inflation on the horizon, projecting about 2% annual rate over the next 5 years.

https://personal.vanguard.com/pdf/ISGCTIPS.pdf


Garland Whizzer

This paper reminds me of the paper trail Vanguard created leading up to its decision to include International Bonds in its Target Date Funds.

Here's the abstract provided at the top of the paper (my bolding):
Vanguard wrote:
■ Unexpected inflation can reduce stock and bond returns. In this paper, we examine several investments with reputations for limiting inflation’s negative impact on a portfolio. Treasury Inflation-Protected Securities (TIPS) and commodities are preferred options against unexpected inflation, but each has benefits and risks that investors should consider.

■ TIPS match unexpected inflation closely with high stability, but that stability means their inflation protection does not go beyond the invested position. Commodities also match but with higher beta, which can mean inflation protection beyond the invested position. However, commodities are a highly volatile asset class.

■ Over long horizons, equities have outperformed inflation, which may be the ultimate protection against inflation. But for shorter-term offsets, commodities and short-term TIPS may be the best alternatives.

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Re: ew vangurd Commodity Fund

Post by Angst » Wed Jun 26, 2019 12:16 pm

SpringMan wrote:
Tue Jun 25, 2019 10:03 am
Vanguard sent us an email regarding this fund today. In my opinion it is not for us. 50K could be better deployed in something easier to understand.
SpringMan,
was than an unsolicited email or just something like a newsletter? Was it focused on suggesting the new commodities fund as something you might invest in?

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Re: Vanguard Commodity Fund- Why?

Post by boglerdude » Thu Jun 27, 2019 1:49 am

Stagflation insurance, and correlation. If you need to make a large unexpected withdrawal from your portfolio, you want uncorrelated assets so you can sell what's expensive.

Hopefully they offer an ETF

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by nisiprius » Thu Jun 27, 2019 10:28 am

Two obvious points...

1) The minimum investment is $50,000.

2) Vanguard puts it at "risk potential level" 5, their highest level. They describe this level by saying
Aggressive funds Risk level 5

Vanguard funds classified as aggressive are subject to extremely wide fluctuations in share prices. These funds may be appropriate for investors who have a long-term investment horizon (10 years or longer). The unusually high volatility associated with these funds may stem from a number of strategies.
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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by LadyGeek » Thu Jun 27, 2019 5:17 pm

I merged PoultryMan's thread into the on-going discussion. The combined thread is in the Investing - Theory, News & General forum (general discussion).
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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by Coato » Thu Jun 27, 2019 5:25 pm

So why are Commodities getting so much attention in the past year? Jeffrey Gundlach said it was his best idea last year. There was a "Money for the Rest of Us" and "Curious Investor" podcast about commodities recently. Several new funds and ETFs have come on line. There seems to be a lot fo activity around an asset class has been inert for a long time.

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Re: Vanguard Commodity Fund- Why?

Post by abuss368 » Thu Jun 27, 2019 9:33 pm

Rick Ferri wrote:
Wed Jun 26, 2019 10:18 am
Vanguard created this fund to lower the cost for investors who want a commodities fund and will go elsewhere to get it and pay a considerably higher cost. It's the same reason they created a hedge international bond fund several years ago. It doesn't mean the strategist's at Vanguard think you should have this fund or invest in every Vanguard fund that comes out.

Rick Ferri
Agree Rick. The only difference is Vanguard included the international bond fund in the Target and LifeStrategy funds. Hoping they don't add commodities to those funds!
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by boglerdude » Fri Jun 28, 2019 12:12 am

> why are Commodities getting so much attention in the past year?

Dalio's been in the news, his All-Weather and Vanguard's Managed Payout Fund hold 7.5%. Also, commodities are the most beaten up asset now

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by lazyday » Fri Jun 28, 2019 6:44 am

The Managed Payout Fund already includes the new Commodity Strategy Fund in its investments.

From the Managed Payout Fund prospectus:
Vanguard Commodity Strategy Fund
Prior to June 25, 2019, the Fund gained exposure to the commodities markets
by investing in a wholly owned subsidiary. Effective June 25, 2019, the Fund
gains exposure to the commodities markets by investing in the Commodity
Strategy Fund. The Fund may also invest directly in commodity-linked
Investments.
Here's how the payout fund used to gain exposure to commodity futures, according to the last annual report:
The fund gains exposure to commodities through the subsidiary’s investment in swaps that earn the total return on a specified commodity index.
Maybe that's the same index as the one in the benchmark, the Bloomberg Commodity Index:

https://data.bloomberglp.com/profession ... r-2019.pdf
BCOM is composed of futures contracts on physical commodities.

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by Dudley » Fri Jun 28, 2019 6:56 am

Anyone know if this fund issues a K-1 for tax ?

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by grok87 » Sat Jun 29, 2019 2:04 pm

boglerdude wrote:
Fri Jun 28, 2019 12:12 am
> why are Commodities getting so much attention in the past year?

Dalio's been in the news, his All-Weather and Vanguard's Managed Payout Fund hold 7.5%. Also, commodities are the most beaten up asset now
yet they are still not in backwardation. so i don't think they are cheap yet.
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Re: Vanguard Commodity Fund- Why?

Post by Angst » Sat Jun 29, 2019 3:18 pm

abuss368 wrote:
Thu Jun 27, 2019 9:33 pm
Rick Ferri wrote:
Wed Jun 26, 2019 10:18 am
Vanguard created this fund to lower the cost for investors who want a commodities fund and will go elsewhere to get it and pay a considerably higher cost. It's the same reason they created a hedge international bond fund several years ago. It doesn't mean the strategist's at Vanguard think you should have this fund or invest in every Vanguard fund that comes out.

Rick Ferri
Agree Rick. The only difference is Vanguard included the international bond fund in the Target and LifeStrategy funds. Hoping they don't add commodities to those funds!

Does anyone else wonder if Vanguard might be thinking about adding Commodities to their Target Date Funds?
Have you seen this Vanguard paper on Commodities and short-term TIPS?

Here is GarlandWhizzer's OP in another thread referring to this (May 2019) Vanguard paper on using Commodities & TIPS for inflation protection:

garlandwhizzer wrote:
Mon Jun 24, 2019 7:13 pm
The article discusses inflation and protection against both expected and unexpected inflation. Some takeaways: Broad commodity exposure and ST TIPS offer the best short term protections against unexpected inflation. REITS, Gold, and longer duration TIPS offer less protection. Equity offers some protection long term but not short term. Cash protects better than nominal bonds from expected inflation. Like everyone else Vanguard doesn't see increasing inflation on the horizon, projecting about 2% annual rate over the next 5 years.

https://personal.vanguard.com/pdf/ISGCTIPS.pdf

Garland Whizzer

This paper, along with the recent launch of the new Vanguard Commodities Fund VCMDX reminds me somewhat of the paper trail Vanguard created leading up to its decision to include hedged International Bonds in its Target Date Funds. They already contain TIPS. Why not commodities? Do you think?

Here's the abstract provided at the top of the paper (my bolding):
Vanguard wrote:
■ Unexpected inflation can reduce stock and bond returns. In this paper, we examine several investments with reputations for limiting inflation’s negative impact on a portfolio. Treasury Inflation-Protected Securities (TIPS) and commodities are preferred options against unexpected inflation, but each has benefits and risks that investors should consider.

■ TIPS match unexpected inflation closely with high stability, but that stability means their inflation protection does not go beyond the invested position. Commodities also match but with higher beta, which can mean inflation protection beyond the invested position. However, commodities are a highly volatile asset class.

■ Over long horizons, equities have outperformed inflation, which may be the ultimate protection against inflation. But for shorter-term offsets, commodities and short-term TIPS may be the best alternatives.

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Re: Vanguard Commodity Fund- Why?

Post by abuss368 » Sat Jun 29, 2019 3:35 pm

Angst wrote:
Sat Jun 29, 2019 3:18 pm
abuss368 wrote:
Thu Jun 27, 2019 9:33 pm
Rick Ferri wrote:
Wed Jun 26, 2019 10:18 am
Vanguard created this fund to lower the cost for investors who want a commodities fund and will go elsewhere to get it and pay a considerably higher cost. It's the same reason they created a hedge international bond fund several years ago. It doesn't mean the strategist's at Vanguard think you should have this fund or invest in every Vanguard fund that comes out.

Rick Ferri
Agree Rick. The only difference is Vanguard included the international bond fund in the Target and LifeStrategy funds. Hoping they don't add commodities to those funds!

Does anyone else wonder if Vanguard might be thinking about adding Commodities to their Target Date Funds?
Have you seen this Vanguard paper on Commodities and short-term TIPS?

Here is GarlandWhizzer's OP in another thread referring to this (May 2019) Vanguard paper on using Commodities & TIPS for inflation protection:

garlandwhizzer wrote:
Mon Jun 24, 2019 7:13 pm
The article discusses inflation and protection against both expected and unexpected inflation. Some takeaways: Broad commodity exposure and ST TIPS offer the best short term protections against unexpected inflation. REITS, Gold, and longer duration TIPS offer less protection. Equity offers some protection long term but not short term. Cash protects better than nominal bonds from expected inflation. Like everyone else Vanguard doesn't see increasing inflation on the horizon, projecting about 2% annual rate over the next 5 years.

https://personal.vanguard.com/pdf/ISGCTIPS.pdf

Garland Whizzer

This paper, along with the recent launch of the new Vanguard Commodities Fund VCMDX reminds me somewhat of the paper trail Vanguard created leading up to its decision to include hedged International Bonds in its Target Date Funds. They already contain TIPS. Why not commodities? Do you think?

Here's the abstract provided at the top of the paper (my bolding):
Vanguard wrote:
■ Unexpected inflation can reduce stock and bond returns. In this paper, we examine several investments with reputations for limiting inflation’s negative impact on a portfolio. Treasury Inflation-Protected Securities (TIPS) and commodities are preferred options against unexpected inflation, but each has benefits and risks that investors should consider.

■ TIPS match unexpected inflation closely with high stability, but that stability means their inflation protection does not go beyond the invested position. Commodities also match but with higher beta, which can mean inflation protection beyond the invested position. However, commodities are a highly volatile asset class.

■ Over long horizons, equities have outperformed inflation, which may be the ultimate protection against inflation. But for shorter-term offsets, commodities and short-term TIPS may be the best alternatives.
For the most part that has been want I have been wondering as well. Hope they do not and keep all the funds or funds Index only.
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Re: Vanguard Commodity Fund- Why?

Post by nisiprius » Sat Jun 29, 2019 3:47 pm

Angst wrote:
Sat Jun 29, 2019 3:18 pm
...Does anyone else wonder if Vanguard might be thinking about adding Commodities to their Target Date Funds?...
I don't know, but Fidelity tried that starting in 2009 and so far it hasn't worked out well for Fidelity:

Fidelity retirement funds take multiyear hit from commodities bet
Fidelity Investments’ bet on commodities for its flagship retirement funds has declined 38 percent over the past five years, while top rivals have avoided the sector altogether or made money with more-conservative strategies....

The Boston-based company inserted its new Fidelity Series Commodity Strategy Fund into its Freedom Funds in 2009 to diversify their portfolios from stocks and bonds while giving them a weapon against inflation. But U.S. inflation has been weak for years, while stocks have been surging.

Realized losses in the Commodity Strategy Fund have totaled $3.26 billion since 2012, according to its financial statements.
As always, some think Fidelity made a mistake, some don't, and Fidelity thinks they didn't:
Fidelity said in a statement that it was sticking with its commodities strategy as its portfolio managers take a long-term view.

“The target date team has confidence in all of the investment strategies that are included in the portfolios."
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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by Silence Dogood » Sat Jun 29, 2019 6:36 pm

Stocks and bonds are investments.

Commodities are not.

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Vanguard Commodity Fund & Target Date Funds

Post by EyeDee » Sat Jun 29, 2019 7:00 pm

.
Angst,

Just my opinion but I would not think Vanguard is very likely to add the Commodities fund to their Target Date funds any time soon, considering that after they created the Short-Term Inflation-Protected Securities Index Fund they added it to the Target Retirement Funds to replace the active Inflation-Protected Securities Fund and dropped the Prime Money Market Fund and changed from saying their Target Date funds used index and index like funds to saying their Target Date funds only used index funds.
Angst wrote:
Sat Jun 29, 2019 3:18 pm
. . .
Does anyone else wonder if Vanguard might be thinking about adding Commodities to their Target Date Funds?
. . .
Randy

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by boglerdude » Sat Jun 29, 2019 9:59 pm

> yet they are still not in backwardation. so i don't think they are cheap yet.

So if I buy a commodities fund, I get a bunch of oil at todays price, or maybe next years price. No one knows what the oil price will be in 5 years. How can you make easy money waiting for "backwardation" eli5 thx

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Re: Vanguard Commodity Fund & Target Date Funds

Post by Angst » Sun Jun 30, 2019 9:49 am

EyeDee wrote:
Sat Jun 29, 2019 7:00 pm
Just my opinion but I would not think Vanguard is very likely to add the Commodities fund to their Target Date funds any time soon, considering that after they created the Short-Term Inflation-Protected Securities Index Fund they added it to the Target Retirement Funds to replace the active Inflation-Protected Securities Fund and dropped the Prime Money Market Fund and changed from saying their Target Date funds used index and index like funds to saying their Target Date funds only used index funds.
Good point, thank you. It would be a step back, simply from the standpoint of having been a purely index-based fund of funds to now including an actively managed commodities fund. Really, it would be more like 1 1/2 steps back. That paper is what still throws me a bit. It's written almost as if it were designed to justify including VCMDX in the Target Date funds. I trust your thinking though is probably correct.

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by Beehave » Sun Jun 30, 2019 11:53 am

I like VGPMX (Vanguard Global Capital Cycles fund) as a way to add a small commodities tilt to my holdings. It invests 25% in mining stocks and that plus the remaining 75% is all invested in capital-intensive enterprises. It's managed by Wellington Advisors. I figure it has a prayer of retaining value as a portfolio diversifier in the event of larger than usual inflation or deflation.

I realize that mining stocks and commodities investments are two different things, but I believe that the odds are that a significant inflation will push up the value of the stocks held by VGPMX.

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by Bill1952 » Mon Jul 22, 2019 11:05 am

If one were to add VCMDX, any thoughts on appropriate portfolio location (IRA versus taxable)?

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by Ketawa » Mon Jul 22, 2019 4:48 pm

Bill1952 wrote:
Mon Jul 22, 2019 11:05 am
If one were to add VCMDX, any thoughts on appropriate portfolio location (IRA versus taxable)?
It'll likely be appropriate only for tax-advantaged accounts.

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by Bill1952 » Thu Jul 25, 2019 6:06 pm

Ketawa wrote:
Mon Jul 22, 2019 4:48 pm
Bill1952 wrote:
Mon Jul 22, 2019 11:05 am
If one were to add VCMDX, any thoughts on appropriate portfolio location (IRA versus taxable)?
It'll likely be appropriate only for tax-advantaged accounts.
Thank you for responding Ketawa. Currently, I hold DBC and DBA (commodity future ETFs) in my taxable account because of the lack of dividend. Can you expound a bit re your reasoning why you would hold VCMDX in a tax-advantaged account?

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by MoneyMarathon » Fri Jul 26, 2019 1:37 am

Bill1952 wrote:
Mon Jul 22, 2019 11:05 am
If one were to add VCMDX, any thoughts on appropriate portfolio location (IRA versus taxable)?
I would prefer taxable. Commodities are volatile but IMO aren't expected to return as much in the long run as equities or bonds. So the little bit of tax efficiency in the percentage of taxation (more favorable tax percentages for capital gains on stocks than there are on commodities) is dwarfed by the gains expected from the other asset classes & the benefits of compounding tax-deferred growth on those larger gains.

This is basically a more-extreme version of the "bonds in taxable" idea since commodities are even less promising long-term than bonds and also more volatile for more TLH in taxable - see https://www.whitecoatinvestor.com/asset ... n-taxable/ which isn't a perfect analysis but captures the gist of the argument.

And, yes, commodities shouldn't offer dividends, although there may be plenty of capital gains distributions if held in a mutual fund and implemented with derivatives, which is the implementation here. It's also collateralized by bonds that presumably have dividends. Even with those, I think I'd prefer commodities in taxable.

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by Ketawa » Fri Aug 02, 2019 2:01 pm

MoneyMarathon wrote:
Fri Jul 26, 2019 1:37 am
I would prefer taxable. Commodities are volatile but IMO aren't expected to return as much in the long run as equities or bonds. So the little bit of tax efficiency in the percentage of taxation (more favorable tax percentages for capital gains on stocks than there are on commodities) is dwarfed by the gains expected from the other asset classes & the benefits of compounding tax-deferred growth on those larger gains.

This is basically a more-extreme version of the "bonds in taxable" idea since commodities are even less promising long-term than bonds and also more volatile for more TLH in taxable - see https://www.whitecoatinvestor.com/asset ... n-taxable/ which isn't a perfect analysis but captures the gist of the argument.
There are serious problems with the "low returning assets go in taxable" arguments because they typically fail to account for the fact that assets held in a taxable account have lower risk compared to a Roth IRA/401k due to their taxation. This has been discussed in many other threads. The investor owns the full value of a Roth IRA, while the government shares in both gains and losses in the taxable account.

The analysis typically compares a Roth IRA to a taxable account and assumes a good outcome for equities. Prioritizing equities in the IRA because you keep more of the gains is no more illuminating than saying a 70/30 portfolio will beat a 60/40 portfolio if equities do well. It was a riskier portfolio that did better.
Bill1952 wrote:
Thu Jul 25, 2019 6:06 pm
Thank you for responding Ketawa. Currently, I hold DBC and DBA (commodity future ETFs) in my taxable account because of the lack of dividend. Can you expound a bit re your reasoning why you would hold VCMDX in a tax-advantaged account?
MoneyMarathon wrote:
Fri Jul 26, 2019 1:37 am
And, yes, commodities shouldn't offer dividends, although there may be plenty of capital gains distributions if held in a mutual fund and implemented with derivatives, which is the implementation here. It's also collateralized by bonds that presumably have dividends. Even with those, I think I'd prefer commodities in taxable.
Interesting; I didn't realize that commodity ETFs like DBA and DBC were so tax-efficient. I don't know whether the implementation of VCMDX will be different. However, if there are substantial capital gains distributions, I would not want to hold it in taxable even if it has low expected returns due to the reasons I mentioned above. I use tax-adjusted asset allocation so my portfolio adjusts for the different levels of risk in my investment account types.

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by pokebowl » Tue Aug 27, 2019 5:36 pm

Question, perhaps a naive one, is there a way to see this fund's portfolio breakdown? Or is it still too new? I see as of earlier this month the website finally has VCMDX's commodity sector breakdown by percentage, however I can not view the actual holdings or contracts within the fund. Usually when I strike out on Vangaurd's website I am able to find better fund visibility through 3rd party brokerages, but appear to have stuck out in this case.
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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by lazyday » Tue Aug 27, 2019 6:12 pm

pokebowl wrote:
Tue Aug 27, 2019 5:36 pm
Usually when I strike out on Vangaurd's website I am able to find better fund visibility through 3rd party brokerages
The most direct way might be to look at annual or semiannual reports, which I'd guess is where those third parties might get their data. (Unless there's other SEC filings with portfolio data? It's been a while since I've looked through sec filings)

https://personal.vanguard.com/us/faces/ ... ducts=true
Annual and Semiannual Reports

N/A
None yet, at least on that page.

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Re: Vanguard Announces Plans to Launch Commodities Fund

Post by Horton » Tue Aug 27, 2019 8:45 pm

HEDGEFUNDIE wrote:
Sun Apr 21, 2019 10:43 am
jeffyscott wrote:
Sun Apr 21, 2019 10:10 am

Let's say expected return of EDV, based on that yield would've been ~3.8%, those rates have declined by a net of about 1%. Duration of EDV is about 24 years, so 1% rate change should change price by about 24%. Over 10 years that 24% would be about 2.4% per year. The expected 3.8% plus the 2.4% due to price change, would give a total of 6.2% and the actual 10 year return is 6.29%. So nearly 40% of the return over the past 10 years was due to the net decline in applicable interest rates.
Are you implying that it’s unlikely we will see a 1% decline in long term yields over the next 10 years? Given the trend line of interest rates over the past 30 years, I’d say it’s more likely than not.
LTPZ does not have a 10 year record yet. But, perhaps interestingly, it's return over it's lifetime is not much different from Vanguard Long-Term Treasury (VUSUX). Does this mean that EDV's higher return is more due to it's longer duration, rather than a nominal vs. TIPS difference?
Duration of LTPZ is 22 years. Duration of EDV is 24 years.
With start date set based on LTPZ, the M* growth of $10,000 has LTPZ at $16,076 and VUSUX at $16,583. Meanwhile EDV is at $19,633. That does not appear to amount to a 4% difference in return. Using 9.5 years, I get a difference of about 2.3%, annualized over that period. How did you come up with your 4% per year difference?
My math was bad there, you’re right.
The other thing to consider is that 30 year TIPS were not offered until 2010, so, while the duration of LTPZ and EDV is similar now, the gap was probably higher in the past.
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