How to invest in commodity as a buy&hold investor?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
physixfan
Posts: 209
Joined: Wed Apr 03, 2019 4:09 pm

How to invest in commodity as a buy&hold investor?

Post by physixfan »

Commodity is a big asset class, and many hedge funds invest in it. To build an all weather portfolio, commodity seems to be an essential part in an inflating environment. My question is, as an individual investor who prefers simple buy&hold strategies, is there a good way to invest in commodities? I don't want to trade actively in commodity futures, and I also don't want to buy some sucker funds like USO which suffers significantly from contango.
User avatar
arcticpineapplecorp.
Posts: 6180
Joined: Tue Mar 06, 2012 9:22 pm

Re: How to invest in commodity as a buy&hold investor?

Post by arcticpineapplecorp. »

1. have you seen this posts:

viewtopic.php?p=5473082#p5473082
viewtopic.php?p=3129485#p3129485
viewtopic.php?p=4833697#p4833697

2. just because hedge funds own commodities doesn't make it a worthwhile investment. Do you know the track record of hedge funds?

https://www.etf.com/sections/index-inve ... nce-update

Swedroe found 10 years through 2018 :
As you can see, the hedge fund index underperformed every major equity asset class, and two of the three bond indexes.
Does that sound like something you want to emulate?

3. commodities are more of a speculation because you only make money if/when you can sell it to someone else for a higher price. It pays no dividends or interest in the meantime, doesn't have a long term track record comparable with stocks or bonds.

4. finally, have you read the wiki:
https://www.bogleheads.org/wiki/Commodities
Last edited by arcticpineapplecorp. on Thu Sep 10, 2020 2:30 pm, edited 2 times in total.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
xenial
Posts: 2697
Joined: Tue Feb 27, 2007 1:36 am
Location: USA

Re: How to invest in commodity as a buy&hold investor?

Post by xenial »

Precious metals are easily purchased in physical form or through ETFs that hold the actual metals. Unfortunately, exposure to other commodities requires use of futures contracts or investment in common stocks of the producers.

I'm not sure if commodities are a good hedge against inflation anymore. Services like healthcare and education seem to be the main drivers of price increases these days.
Robot Monster
Posts: 1522
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: How to invest in commodity as a buy&hold investor?

Post by Robot Monster »

A commodities thread makes my heart swoon! There's so little love shown for commodities around here, even a mere question about it makes me giddy with excitement.

First, I would like to direct your attention to the Vanguard research paper called "From reflation to inflation: What's the tipping point for portfolios?"

Page five of the PDF will show you ideal portfolios for varying inflationary environments. You might be surprised to see a couple of them have 30% allocations. It certainly surprised me--chocolate milk shot out of my nose.

Anyway, you're aware that Vanguard has a commodities fund? I own some, and I have to say, it's pretty wicked. Five percent of the fund consists of livestock futures, can you believe it, inflation defeating livestock? Well, there's also GraniteShares. Let me look that up for you...

GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF
https://www.graniteshares.com/instituti ... /etfs/comb

K, well, looks like my work here is done. And, up, up, and away!
Last edited by Robot Monster on Thu Sep 10, 2020 3:45 pm, edited 1 time in total.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
User avatar
firebirdparts
Posts: 1782
Joined: Thu Jun 13, 2019 4:21 pm

Re: How to invest in commodity as a buy&hold investor?

Post by firebirdparts »

I think it's a mistake to lump commodities into a category. Right now, demand for consumable commodities is down , but business is generally coming back around the world. big projects might not be coming back. We don't really need them, and nobody wants to pay a construction company to build something while masked/quarantined/working from home/etc. We'll see.

Industrially useful metals, farm products, energy sources, and jewelry metals ought to all be separate categories at least in your mind. they all experience megatrends and the trends aren't really even related to each other.
A fool and your money are soon partners
Day9
Posts: 986
Joined: Mon Jun 11, 2012 6:22 pm

Re: How to invest in commodity as a buy&hold investor?

Post by Day9 »

I am going to preempt an accusation that a former contributor to this board recommended collateralized commodity future funds like PCRIX, and they have done extremely poorly. That former contributor recommended to add a splash of commodities to your portfolio, taking the allocation out of stocks, while simultaneously extending the duration of your bond portfolio. That strategy would have done just fine. The reason for that is commodities can be a haven in stagflation when stocks & bonds both do poorly, while increasing the duration of your bond portfolio does well in deflation.
I'm just a fan of the person I got my user name from
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: How to invest in commodity as a buy&hold investor?

Post by 000 »

Buy and hold durable consumer goods you use yourself.

Assuming storage cost is free, this strategy returns 0% real.

Not sure why you need exposure to copper, oil, or cattle futures.
Beehave
Posts: 803
Joined: Mon Jun 19, 2017 12:46 pm

Re: How to invest in commodity as a buy&hold investor?

Post by Beehave »

Probably not what OP had in mind and certain to draw howls of derision and indignation, but here's a suggestion to think about.

The Vanguard Global Capital Cycles fund was formerly their precious metals and mining fund. It's management is now by Wellington, and it has 25% in mining companies (precious metal-oriented) and the remainder in high-cost of-entry industry holdings. Here's a bit from the website:

"At least 25% of the fund will be invested in precious metals and mining securities. It also focuses on opportunities to invest in companies with scarce, high-quality infrastructure assets—typically in utilities and telecommunications—that are viewed as irreplaceable and therefore have enduring value."

It seems plausible to me that this fund, as managed by Wellington, may be a reasonable form of hedge if there is an inflation or a deflation, with companies (hopefully or allegedly) being somewhat shielded from new competition.

The fund is generally not popular here - people have been upset by the sudden change of the nature of the fund a couple of years back at what seemed to be exactly the wrong time. I get that - this suggestion is intended to be forward-looking relative to the post, not any justification of how the fund became what it now is.
apex84
Posts: 167
Joined: Sun Mar 11, 2007 12:51 am
Location: Chicago

Re: How to invest in commodity as a buy&hold investor?

Post by apex84 »

I wouldn't invest a lot in them, but commodities are now easy to invest in.

Vanguard Commodity Strategy Fund Admiral Shares (VCMDX)
https://investor.vanguard.com/mutual-fu ... file/VCMDX

Commodities and short-term TIPS: how each combats unexpected inflation
https://personal.vanguard.com/pdf/ISGCTIPS.pdf
stimulacra
Posts: 787
Joined: Wed Dec 21, 2016 3:50 pm
Location: Houston

Re: How to invest in commodity as a buy&hold investor?

Post by stimulacra »

apex84 wrote: Thu Sep 10, 2020 5:07 pm I wouldn't invest a lot in them, but commodities are now easy to invest in.

Vanguard Commodity Strategy Fund Admiral Shares (VCMDX)
https://investor.vanguard.com/mutual-fu ... file/VCMDX

Commodities and short-term TIPS: how each combats unexpected inflation
https://personal.vanguard.com/pdf/ISGCTIPS.pdf
Minimum amount is $50k.... for many that’s a good chunk.
User avatar
Topic Author
physixfan
Posts: 209
Joined: Wed Apr 03, 2019 4:09 pm

Re: How to invest in commodity as a buy&hold investor?

Post by physixfan »

apex84 wrote: Thu Sep 10, 2020 5:07 pm I wouldn't invest a lot in them, but commodities are now easy to invest in.

Vanguard Commodity Strategy Fund Admiral Shares (VCMDX)
https://investor.vanguard.com/mutual-fu ... file/VCMDX

Commodities and short-term TIPS: how each combats unexpected inflation
https://personal.vanguard.com/pdf/ISGCTIPS.pdf
This Vanguard fund seems interesting. It seems pretty new? I wonder whether there’s historical performance simulation on this fund...
User avatar
Forester
Posts: 1547
Joined: Sat Jan 19, 2019 2:50 pm
Location: UK

Re: How to invest in commodity as a buy&hold investor?

Post by Forester »

physixfan wrote: Thu Sep 10, 2020 9:38 pm
apex84 wrote: Thu Sep 10, 2020 5:07 pm I wouldn't invest a lot in them, but commodities are now easy to invest in.

Vanguard Commodity Strategy Fund Admiral Shares (VCMDX)
https://investor.vanguard.com/mutual-fu ... file/VCMDX

Commodities and short-term TIPS: how each combats unexpected inflation
https://personal.vanguard.com/pdf/ISGCTIPS.pdf
This Vanguard fund seems interesting. It seems pretty new? I wonder whether there’s historical performance simulation on this fund...
Passive long commodity contracts looks good in the backtest due to the historic & now diminished roll premium. If you seek more commodity hard asset exposure you could own a basket of gold, silver, miners, energy producers, cheaply and easily with ETFs.
balbrec2
Posts: 338
Joined: Mon Nov 13, 2017 3:03 pm

Re: How to invest in commodity as a buy&hold investor?

Post by balbrec2 »

If you insist, DBC
Robot Monster
Posts: 1522
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: How to invest in commodity as a buy&hold investor?

Post by Robot Monster »

physixfan wrote: Thu Sep 10, 2020 9:38 pm
apex84 wrote: Thu Sep 10, 2020 5:07 pm I wouldn't invest a lot in them, but commodities are now easy to invest in.

Vanguard Commodity Strategy Fund Admiral Shares (VCMDX)
https://investor.vanguard.com/mutual-fu ... file/VCMDX

Commodities and short-term TIPS: how each combats unexpected inflation
https://personal.vanguard.com/pdf/ISGCTIPS.pdf
This Vanguard fund seems interesting. It seems pretty new? I wonder whether there’s historical performance simulation on this fund...
The below is not a simulation of the Vanguard Commodity Strategy Fund, but it will give you a sense of historical commodity performance.

Commodities did nicely during the inflation melt up from '68 to '80. Using the below graph where commodity prices were $97.7 in 1968 and $330 in 1980...A CPI calculator says $97.7 (1968) turns into an inflation adjusted $222.90 in 1980 dollars.

Image

I don't know if you get the Wall Street Journal, but here is a favorable article about commodity investing by Jason Zweig,
https://www.wsj.com/articles/its-slow-g ... 1574437225

It includes a graph of historical performance compared to stocks.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
Robot Monster
Posts: 1522
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: How to invest in commodity as a buy&hold investor?

Post by Robot Monster »

Average performance when inflation above 4%:

Image
Source

Please note: While I realize this does not address this thread's question for how to invest in commodities, I still felt the need to post this in some commodities thread, and this one was nearest at hand. Apologies for any trouble this has caused.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
heyyou
Posts: 3794
Joined: Tue Feb 20, 2007 4:58 pm

Re: How to invest in commodity as a buy&hold investor?

Post by heyyou »

About the above graph, isn't Oil often the largest holding in a commodities fund? It is likely the largest traded commodity.
Post Reply