What Are Commodity-Linked Index Funds?
Commodities other real assets (natural resources) were long only able to be invested in through the commodities markets, and therefore not easily accessible to the common retail investor. Recently, investment products, such as mutual funds and--more recently-- ETFs, introduced products with performance linked to these assets.
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Commodities Investing
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Commodities are a viable investment alternative that have performance similar to stocks but with little correlation in movement. When one area is strong, the other seems to be weak. Commodities perform well in times of inflation and uncertainty.
Commodities Availability
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Traditionally, the only way to invest in commodities was through the futures market. This posed restrictions to many who were not qualified or who felt it too risky.
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Misconceptions
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Commodities have their own inherent value and are priced--unlike publicly traded stock--at their exact worth based on supply and demand. With corn, for example, there is only a producer and a consumer--or, a seller and a buyer--who agree on a price.
Commodities Linked Funds
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Mutual funds are prohibited from directly owning commodities. However, they can own futures contracts or options and can "synthetically" participate in the price moves of underlying commodities plus they can own shares of companies that are linked to the business of gold, oil, livestock, grain.
Commodities Linked ETFs
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ETFs don't have the same limitations as mutual funds, and the ability to participate in broad and narrow indexes makes them suitable considerations for novice or advanced investors.
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