Commodities in Portfolio

[moneybagz]

Just wondering whether anybody has a commodities allocation in their portfolio? In Ray Dalios all weather portfolio he holds 7.5% commodities and 7.5% gold. He states 'You need to have a piece of that portfolio that will do well with accelerated inflation, so you would want a percentage in gold and commodities. These have high volatility. Because there are environments where rapid inflation can hurt both stocks and bonds.”

I know they haven't performed well recently, but do they have a place in a portfolio?

Thanks

[monabri]

Only via an Investment Trust. In my portfolio I hold BlackRock Commodities ( BRCI).

[richfool]

Only via an Investment Trust. In my portfolio I hold BlackRock Commodities ( BRCI).

Me too, (only through BRCI), which I sold a couple of months back.

[stevensfo]

Only via an Investment Trust. In my portfolio I hold BlackRock Commodities ( BRCI).

Me too, (only through BRCI), which I sold a couple of months back.

I did a lot of reading after the Financial crisis and settled on 10% commodities. I hold BlackRock Commodities ( BRCI) and Blackrock World Mining (BRWM). Both are quite volatile and yo-yo up and down 5% all the time but pay very good dividends and I'm happy to hold.

I would be wary of gold and silver as part of a serious portfolio, unless you're into Mad Max/Armageddon type scenarios, coin collecting or want to leave them to your kids.

Steve

[Lootman]

Commodities can be thought of as comprising three broad groups:

1) Energy: Oil, natural gas, coal, uranium etc.
2) Precious metals: Gold, silver, platinum and palladium. (Diamonds and gems as well, arguably).
3) Other natural resources, mostly base metals, aggregates and agriculturals.

The problem for a private investor is that with the exception of (2) it is not practicable to hold the commodities themselves. Which means using futures, which come with various complications such as needing a margin account, and contango/backwardation - the deviation between spot prices and futures prices.

Even commodities ETFs usually use futures so the problem does not go away if you use an ETF or other type of collective.

Luckily (1) and (2) can be held by owning shares of the producers, which is what the BRCI fund mentioned earlier does. Most oil companies and precious metals miners demonstrate a high correlation to the underlying raw material price. You could buy Barrick Gold and Total, for instance.

For (3) it's trickier. The major mining companies can be a decent proxy for base metal prices e.g. BHP, Vale, Freeport-McMoran etc. Agriculturals are harder to replicate although you can try the companies that support farming e.g. Deere, Monsanto, Mosaic etc.

[moneybagz]

Thanks for the replies, it looks like BRCI is a popular choice. I was originally looking at Lyxor Commodities Thomson Reuters/Corecommodity (CRBL) or iShares Diversified Commodity Swap UCITS ETF (COMM) based on low management fees between 0.19 and 0.30, but I'm guessing there are hidden expenses in there that aren't reflected in the low fee?

BRCI tracks the commodity ETFs quite well but with increased volatility. I see it trades at a 6.45% discount so a good time to buy perhaps? I already hold 5% gold (physical gold ETC) so would a 5% allocation to BRCI seem reasonable?

[tjh290633]

You might like to consider JP Morgan Natural Resources Fund as another proxy for commodities. I haven't looked at the spread of investments recently, but it is probably different from BRCI, in that the yield is very low.

TJH

[monabri]

BRCI
BHP Group Plc Ordinary 9.62%
Royal Dutch Shell Plc B Shares 7.26%
Rio Tinto plc Ordinary 6.73%
Glencore plc Ord 5.67%
Exxon Mobil Corp 5.16%
Teck Resources Ltd Class B 4.86%
Vale SA ADR 4.86%
BP Plc Ordinary 4.79%
Chevron Corp 4.78%
ConocoPhillips 3.75%

JP Morgan Nat Resources
BHP Group 9.60%
Exxon Mobil Corp. 5.75%
Rio Tinto 5.62%
Glencore 5.40%
Royal Dutch Shell B 4.62%
Vale SA 4.13%
Total S.A. 3.98%
BP 3.38%
Chevron 2.83%
Lundin Petroleum AB 2.72%

[richfool]

I sold BRCI as it predominantly held "oilies" and miners, both of which I saw as due to suffer downturns, are cyclical, and which I had exposure to through other IT's.

[Lootman]

I sold BRCI as it predominantly held "oilies" and miners, both of which I saw as due to suffer downturns, are cyclical, and which I had exposure to through other IT's.

Well, oil and metals are probably over 90% of the entire commodities space, so you'd expect a commodity producers ETF to be very heavily weighted to both of those. In fact oil/gas alone is about 70% of the total commodities market. As I noted above, the only commodities sub-sectors that are left are agriculturals and aggregates, and not many people want a significant position in those at the expense of the other 90%.

So if you are saying that you don't like energy and metals, then you are really saying that you don't like commodities. I read somewhere that there was an ETF that equally-weighted the commodities, implying that oil and pork bellies were weighted the same. Not sure that's what most investors would want however.

If you want a market neutral weighting to natural resources, as the OP said he does, then you are really investing in energy and metals.

[moneybagz]

Possibly combine BRCI with AGAP (ETFS Agriculture ETC) to get a spread of all commodities?

[TraderTed]

With a standard shares account you should be able to hold commodities via ETFs

PHAU.L = Physical Gold
PHAG.L = Physical Silver

You have to watch out for commodity ETFs with contango and shorts, they don't work well over the long term.

To find ETF tickers I used a website called ETF Securities but it now seems to renamed Wisdom Tree.

To follow live spot price you could use CFDs (contracts for difference) but leverage is another kettle of fish, best for shorting though.