Investing in commodity mutual funds is one of the best means of hedging a portfolio that is otherwise dominated by stocks against unexpected financial or political crises or ordinary economic downturns. For example, in the wake of the Great Recession, during the late 2000s into the early 2010s, gold prices advanced from around $800 an ounce in 2008 to almost $2,000 an ounce in 2011. There is a historical tendency for an inverse relationship between stocks and commodities; when the overall stock market is in a bear market, commodities tend to experience a bull market.
Mutual funds provide investors with easy exposure to the commodities markets while avoiding the complications and additional risks of directly trading highly leveraged commodity futures. Commodity mutual funds typically invest in both the stocks of companies involved in commodities such as mining companies and in commodities proper. One advantage of this approach to commodity investing is that commodity mutual funds may perform well even when commodity prices overall are not. Mining company stocks may rise even during a period when the spot price of the mined commodity is falling. Other factors in addition to commodity prices that impact the stock prices of companies in commodities-related businesses include the companies' debt and cash flow situations.
Gabelli Gold Fund Class A (GLDAX)
The Gabelli Gold Fund Class A is a good mutual fund for investors specifically seeking exposure to the gold and precious metals markets. Launched by Gabelli Funds in 1994, its primary investment aim is long-term capital growth. Under ordinary circumstances, at least 80% of the fund's $510.36 million in assets is invested, along with borrowed capital for investment, in both U.S. domestic stocks and foreign stocks of companies principally engaged in gold-related business operations. The fund manager looks for gold-related stocks that are currently undervalued and that have above-average growth potential. A substantial portion of assets may be dedicated to foreign stocks since many of the major gold-mining companies are headquartered outside the United States. Any dividends or capital gains are distributed annually.
Metals and mining sector stocks account for approximately half of the fund's portfolio holdings. Major holdings of the fund include Barrick Gold Corp and Newmont Corp, each of which commands about 8.54% and 8.07%, respectively, of portfolio assets. Other significant holdings are Franco-Nevada Corporation, Wheaton Precious Metals Corp, and Agnico Eagle Mines Ltd.
The fund appeals to those investors seeking long-term goals, like retirement, and if the risk appetite is higher, with the understanding that the payoff is in long-term returns.
Invesco Balanced-Risk Commodity Strategy Fund Class A (BRCAX)
The Invesco Balanced-Risk Commodity Strategy Fund Class A offers investors a broader basket exposure to the total commodities market. This Invesco fund is relatively new, having been launched in 2010. The fund has $601.7 million in assets that it uses to pursue the investment goal of maximum return on investment (ROI). The fund's assets are typically invested in derivatives and other commodity-based investment instruments that are expected to reflect the overall performance of the underlying commodities and that provide exposure to four of the major commodity market segments. Those segments are precious and industrial metals, energy, and agriculture. Such investments commonly include futures and swap agreements. The fund also invests in U.S. Treasury securities and debt securities of other countries. The fund may also make use of investments in commodity-based exchange-traded funds (ETFs) or exchange-traded notes (ETNs). Capital gains or dividends are distributed annually.
Major holdings in the fund are Commodity 3X EqWgt BARCAP20 CLN at 7.59%, S Soybean Future at 6.58%, and Commodity 2X EqWgt BARC/WrldBnk 16 CLN at 5.42%.
As of Aug. 31, 2020, Morningstar gave the fund an "overall rating of 4 stars out of 100 funds and was rated 3 stars out of 100 funds, 4 stars out of 84 funds and N/A stars out of 40 funds for the 3-, 5- and 10- year periods, respectively."
BlackRock Commodity Strategies Fund (BICSX)
The BlackRock Commodity Strategies Fund, launched by BlackRock in 2011, offers investors exposure to four principal commodity groups: energy, precious metals, industrial metals, and agriculture. The fund's investment aim is long-term capital appreciation. The fund implements two basic strategies to achieve the fund's stated investment goal of capital appreciation, splitting the fund's $211.1 million in assets into roughly equal amounts devoted to each strategy, with the exception of precious metals, which is only allocated 6.21%. Agriculture leads with 19.56% of the fund's equity. The first strategy focuses on investments in commodity-related derivatives. The other focuses on equity investments in commodity-related companies, including mining, energy, and agricultural companies. The fund is invested in U.S. domestic and foreign stocks.
The fund is rated five stars overall by Morningstar against 100 Commodities Broad Basket Funds based on risk-adjusted total return. Some of the fund's holdings include Newmont Corporation 2.48%, Barrick Gold Corp at 2.13%, and Chevron Corp at 1.46%.