One example of a commodity fund is Parametric Commodity Strategy Institutional Fund (EIPCX), which includes more than 30 different commodity types, including agricultural, energy, livestock, and precious metals. Another good example of a commodity fund is the BlackRock Commodity Strategies Fund (BICSX), which is a fund comprised of various commodity-related companies and commodity-link derivatives.
How a Commodity Fund Works
Commodity funds typically work by investing commodities through one or a combination of ways, such as: Commodity funds can differ in terms of their diversification, too. Some commodity funds might specifically invest in one type of commodity, like gold or silver, whereas others might provide exposure to a broader category, like precious metals. Others provide exposure to a mix of commodity categories—rather than making you invest in precious metals or agriculture separately, you can invest in all of them through a single fund.
What Commodity Funds Mean for Individuals
Commodity funds can provide ways for individuals to get exposure to different types of assets than they might normally access through traditional stock or bond funds. Doing so can provide benefits like diversification, as commodities generally have a low correlation to the stock and bond markets. However, if you’re investing in commodity funds that invest in the equities of commodity-related companies, that might affect that level of correlation. Commodity investing can also provide protection against inflation, as inflation generally means that commodity prices are rising, so investors can benefit from those increases.
Commodity Fund Risk
However, commodity funds also carry risks. They can be subject to volatility that can be hard to predict. Global political events can cause oil prices to quickly rise or fall, or weather events could affect the price of agricultural crops. Also, commodity funds can involve some complex tax situations. Because of the high-risk, high-reward nature of commodities, if you’re interested in commodity funds, you may want to consult with a professional advisor who can offer advice based on your risk tolerance and investment goals. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
