Hot Commodity Funds Draw Investors to Natural Resources
Samantha Zee Bloomberg News, THE JOURNAL RECORD
NEW YORK -- Commodity funds, which matched the performance of growth stock mutual funds and far outpaced U.S. bond funds in the last five years, are attracting investors willing to bet raw materials prices will rise faster than securities.
The $2.4 trillion invested in mutual funds since 1990 helped send stock prices soaring and pushed the Dow Jones Industrial Average up 85 percent since November 1994. With some analysts saying such movement isn't likely this year, investors are looking at natural resources.
"Investors are seeking diversity from stocks and bonds" and like commodity funds as a hedge against inflation, said Richard Bornhoft, a managing director at Hart-Bornhoft Group in Denver, which manages $175 million in funds, which include commodities. That's because inflation generally signals higher prices for raw materials, making commodity funds more valuable. On the other hand, inflation erodes the value of fixed-income investments. The average natural resources fund returned an annualized 13.70 percent over the last five years, according to Lipper Analytical Services. That matched the Lipper growth stock fund index. General U.S. government funds tracked by Lipper returned just 5.82 percent in the same period. Assets in commodity funds, also known as managed futures funds, grew to $25.8 billion in 1996, up from $22.8 billion in 1995, according to Managed Account Reports, a tracking firm. In 1980, assets were just $300 million. To be sure, commodity funds can be more volatile than stock and bond funds. That's because prices of raw materials can be swiftly affected by changes in everything from governments to the weather. Top performing commodities funds include Smith Barney Natural Resources Fund, Van Eck Global Hard Assets Fund and Franklin Natural Resources Fund. They invest not only in companies which mine or produce raw materials but also buy the raw materials themselves. Even in the past year, when inflation reached a 30-year low, commodities managed to rally. "We think we can make money in the fund" even in a period of low inflation, said David Standlin, co-manager of the Smith Barney fund. Demand for raw materials is especially strong in emerging economies in Asia and South America, he said. Last year, the $140 million fund had a return of 34.82 percent, up from a loss of 10.58 percent in 1995 when the fund's only asset was gold. A good way to begin is to open an account with a fund that offers a combination of energy, metals, lumber and financial futures. It costs as little as $1,000 to start. The more money invested, the lower the commissions, which average about 5 percent for investments of as much as $25,000. In the larger funds, investors can usually make deposits or withdrawals daily. Some smaller funds allow such transactions just once a month. …