Just as Bill Gross is seen as the "Bond King," Jim Rogers is looked upon by the commodity community as the hard asset guru. As one half of the famous Quantum Fund, along with George Soros, Rogers made a name and a fortune for himself. Helping to popularize physical goods investing for the average Joe, his words, like Warren Buffett's, are usually taken to heart. So when he speaks, people listen.

IN PICTURES: World's Greatest Investors

In a recent Barron's article, Rogers talked about the increasing inflation due the U.S. economic stimulus and the world's nations running the "printing presses" in order to pay for it all. Rogers also touched on the future growth of China and the nations of the Far East. To that end, he mentions that he has been buying commodities through the Elements branded Rogers Commodity ETNs via four funds.

ELEMENTS
Rogers International Commodity ETN (NYSE:RJI)
ELEMENTS Rogers International Commodity Metal ETN (NYSE:RJZ)
ELEMENTS Rogers International Energy ETN (NYSE:RJN)
ELEMENTS Rogers International Commodity Agriculture ETN (NYSE:RJA)

He states that these Rogers International Commodity ETNs are great ways to play both the inflation angle as well as the growth in China. While individual commodities are becoming more and more important as pieces of the individual investor's portfolio, as inflation rears its ugly head, it's not proven whether those exchange-traded notes are the way to go.

Elements Run into Trouble
The Rogers International Commodity Index (RICI), on which RJI is based, has gained 158% since its inception in 1998. In the same time, the S&P 500 has fallen about 23%. The index is a thing of beauty, comprising 36 different futures. The problem isn't with the index, but with the note sponsors.

Investors tend to lump exchange traded funds (ETFs) and exchange traded notes (ETNs) into the same boat, but there are fundamental differences. Besides the legal aspects, ETFs are subject to the Investment Company Act of 1940. ETNs fall under the Securities Act of 1933, and the major difference is that ETNs are really nothing more than unsecured debts - a promise to pay holders the return of an index. ETF investors have a claim on the assets they hold. Not so for exchange-traded notes. The Elements line of Exchange Traded Funds is unique in that it uses several different issuers under one umbrella. Unfortunately, most of them are running into trouble. (Find out which futures, options or funds will be your perfect commodity portfolio fit; read How To Invest In Commodities.)

Aktiebolaget Svensk Exportkredit, or Swedish Export Credit Corporation (SEK), the third largest ETN issuer and sponsor of the Rogers notes, announced at the end of March that it was going to have to reinstate earnings from 2006 forward. The company mentioned in the filing that it needed to do so "in order to correct certain technical errors in the marking to market of a small number of derivative positions, assets and liabilities required to be reported at fair value." SEK believes the restatement shouldn't have any effect whatsoever on its ability to service its outstanding debt and other obligations. This remains to be seen, however. A note in SEC document also states that the issuer will not issue any new shares of the fund until the reinstatement is completed. A note on the Elements home page states that this should occur on May 18.

The other issuers of Elements notes have also not fared well. In October, the five Deutsche Bank (NYSE:DB) sponsored currency notes were withdrawn from the NYSE due to insufficient trading volumes. The Deutsche Bank stated in the press release that it will continue to make bids for the securities, but is not required to do so. More recently, Credit Suisse (NYSE:CS) delisted three of its commodity-based Elements due to lack of assets and trading volume.

Alternatives
Given the wishy washy nature of the Elements line of products and the added general credit risk of exchanged traded notes, investors wanting commodity exposure should stick to the ETF form. There are several good broad-based choices. From the popular iShares line, the S&P GSCI Commodity-Indexed Trust (NYSE:GSG), follows 24 different futures contracts with a 65% weighting towards energy. The fund charges a modest 0.75% in expenses. The more popular, via its larger trading base and assets under management, PowerShares DB Commodity Index Tracking Fund (NYSE:DBC) follows the six most heavily traded futures contracts on NYMEX. These include light sweet crude, gold, wheat, corn, aluminum and heating oil. These products are structured as Limited Partnerships, so investors will get a K-1 statement come tax time, but that small headache is worth it for the "safety factor" of owning the ETF form. (Learn more in Discover Master Limited Partnerships.)

The Bottom Line
Jim Rogers is right on the money when it comes to commodity investing. Increasing inflation and the growth of foreign and emerging nations will drive the price of hard assets up for a long time. Individual investors should have some exposure in their portfolios. However, given the credit mess and the Elements exchange notes recent problems, I think investors are better suited elsewhere, namely the commodity ETFs. Now if we could only get someone to create an exchange fund based on the Rogers International Commodity Index, we would be all set.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  6. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  9. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Derivative

    A security with a price that is dependent upon or derived from ...
  3. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  4. Security

    A financial instrument that represents an ownership position ...
  5. Series 6

    A securities license entitling the holder to register as a limited ...
  6. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!