How I invest in commodities...
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Those of you who follow my blog will know that I use the City Natural Resources Investment Trust (CYN) to gain exposure to the commodities sector. Why have I chosen this? Firstly because it is a company that owns shares in other companies, which spreads the risk of the collapse of a single company. So, although it is a single company in itself, it is effectively a ‘fund of funds’. Often, if a company is doing well, it’s performance will be better than the performance of a group of companies, some of whom are, inevitably, underperforming. Glencore is an example. It is a large mining company whose performance has been very good recently, which makes it a tempting buy, but there have been questions about its’ financial situation. The visuals of the relative bankruptcy risk of the two companies can be seen below (thanks to Stockopedia).
Glencore
City Natural Resources High Yield Trust
What about other funds? Blackrock World Mining Trust (BRWM) is a well-known investment trust. It’s a bigger trust with greater turnover on the stockmarket. My understanding is that it does not have exposure to energy, or alternatives, or agriculture. CYN does hold all of these within it’s portfolio, which makes me feel that it is a broader commodity exposure.This may or may not be entirely a good thing, of course, as poor performance of one type of commodity will hold back the performance of the fund as a whole. Here is a graph of CYN versus BRWM over the past 10 years. I suspect that either would have worked satisfactorily for my trend-following model.
What about a commodity index ETF like ETFS All Commodities (AGCP)? The main problem with this product is that it is a synthetic ETF, in that it does not actually own the products that it tracks, it just uses financial swaps to track the product. This is fine, as long as all parties in the trades stay in business and there is no financial crisis……
In summary, I think that I’m happy to use CYN as my main commodity exposure. I may, however, make speculative trades in some individual commodities that give out strong buy signals at some point in the future. One that I am keeping a close eye on is corn:
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Those of you who follow my blog will know that I use the City Natural Resources Investment Trust (CYN) to gain exposure to the commodities sector. Why have I chosen this? Firstly because it is a company that owns shares in other companies, which spreads the risk of the collapse of a single company. So, although it is a single company in itself, it is effectively a ‘fund of funds’. Often, if a company is doing well, it’s performance will be better than the performance of a group of companies, some of whom are, inevitably, underperforming. Glencore is an example. It is a large mining company whose performance has been very good recently, which makes it a tempting buy, but there have been questions about its’ financial situation. The visuals of the relative bankruptcy risk of the two companies can be seen below (thanks to Stockopedia).
Glencore
City Natural Resources High Yield Trust
What about other funds? Blackrock World Mining Trust (BRWM) is a well-known investment trust. It’s a bigger trust with greater turnover on the stockmarket. My understanding is that it does not have exposure to energy, or alternatives, or agriculture. CYN does hold all of these within it’s portfolio, which makes me feel that it is a broader commodity exposure.This may or may not be entirely a good thing, of course, as poor performance of one type of commodity will hold back the performance of the fund as a whole. Here is a graph of CYN versus BRWM over the past 10 years. I suspect that either would have worked satisfactorily for my trend-following model.
What about a commodity index ETF like ETFS All Commodities (AGCP)? The main problem with this product is that it is a synthetic ETF, in that it does not actually own the products that it tracks, it just uses financial swaps to track the product. This is fine, as long as all parties in the trades stay in business and there is no financial crisis……
In summary, I think that I’m happy to use CYN as my main commodity exposure. I may, however, make speculative trades in some individual commodities that give out strong buy signals at some point in the future. One that I am keeping a close eye on is corn:
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