Alternative Investments: Commodity

CFA Level III Portfolio Management
#1

Is commodities ETF a direct or indirect commodity investment?

#2

Good question. Exactly there are 3 kinds of commodities ETFs. First hold physical commodities, second uses only derivatives thus is synthetically exposed, third has stocks of companies which exploit commodities. I would say all but third are directly exposed to commodities.

#3

since its a fund - i’d say indirect

#4

The fact this is fund does not mean indirect exposure. And you may trade ETFs as ordinary stock on market.

#5

companies that exploit commodiest is INDIRECT.

investments in actual commodities or futures on commodities or ETFs that invest in futures of commodities are DIRECT

#6

Did I say something else? BTW, I was investing in commodities ETFs. There are commodity ETFs which invest solely to mining companies thus those ETFs are indirectly exposed to commodities and are listed under commodity ETFs.

See:

http://etf.stock-encyclopedia.com/category/commodity-etfs.html

#7

I think mutual funds vs ETFs may come up somewhere on the exam…pretty nuanced differences (5 of them)

#8

I could only think of (ETF): - No record keeping of shareholding - Fees paid to S&P etc - Possibility to trade during the day What else would you say?

#9
  • ETFs are more tax effective than mutual Funds.
#10

My understanding of Direct Investing in Commodities is having the bushel of corn dropped off in your driveway… Go long a futures contract, and dont take an offsetting position before maturity, you better start looking for a silo to store it…

#11

Direct investment in commodity :

  • Buy physical commodity

Indirect investment in commodity :

  • Commodity stocks
  • Commodity mutual funds
  • Commodity futures index (commodity etf and commodity certificate)
  • Commodity futures contract

This is my understanding, someone please correct me if I am wrong …

#12

Commodity futures are a direct investment. Not entirely sure about the certificate but I would venture they are also a direct investment.

#13

Futures return = excess return = spsot return + roll return

2 return components in case of investment in futures contract

3 components in total return commodity index, 4 components in fully collaterized portfolio of futures positions

However, if we directly invest in physical commodity there is only 1 return component i.e. spot return

Above were the basis of my understanding …

#14

Thanks

#15

Direct: Actual commodity and derivatives

Indirect: Everything else.

Not much to it.

#16

It means :

Direct investment ( commodity ) 1) buying physical commodity 2) publicly traded derivatives such as commodity futures …

Indirect investment ( commodity ) all other forms of investment

Direct investment ( real estate ) buying physical property … Sole as well as in partnership

Indirect investment ( real estate ) publicly traded REATS …