Commodity Funds

[dualstow]

EDIT: some funds mentioned in this thread, a-z:

COM/CCOM DBC GSG

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I’m curious: is anyone holding them? Obviously, they are not a substitute for gold in a true PP. However, the Golden Butterfly is not the pp and yet I consider holders of it to be pp’ers. (And really, anyone with a lazy portfolio who sticks with it is part of the club, no?)

I haven’t held a fund like that since Vanguard’s Precious Metals & Mining fund a very long time ago. I got rid of my paper gold and own only 1-oz bullion coins, for the most part. I hold no mining stocks either. (Well, a nibble of Newmont, but I often forget that it’s there). Still, I’m curious about holding commodities in my VP.

Does anyone hold them? Are there funds you’ve read about and are thinking about buying?
• In what kind of account do you hold them?
• How is the paperwork/ tax hassle?
• What am I not asking that people should know about the fund?

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Older Threads

’Commodities’ | 2020 | ochotona

’Commodity Stocks Getting Creamed’ 2022 | Maddy

’Commodities’ | 2010 | rvb

[Smith1776]

Yaaay! A commodities thread!

As you mentioned in that other thread, I have commodities as an explicit allocation in my All-Terrain Portfolio. I elected for commodities as an "evolution" from gold for a few reasons.

- A diversified commodities fund will have gold in it. So you still have gold, but in addition you get lots of other commodities too.
- Diversified commodities seem to do a better job of actually protecting against inflation compared to gold (higher correlation to inflation). The one exception would be those SHTF scenarios and hyperinflation. In which case...
- I have a separate slug of physical gold and "physical" Bitcoin which currently totals about 5% of net worth for currency collapse scenarios.

A couple of the issues that I've had with commodities historically was "solved" for me when I discovered CCOM.TO. (There is also an ETF in the US that tracks the same index called COM.)

https://funds.cifinancial.com/en/funds/ ... esId=14265

CCOM limits the volatility of traditional commodities, only goes long when the contract in question is in backwardation, and uses some momentum/trend signalling. Any time the fund is not going long it earns money market fund rates, so at least it's earning something while not invested.

And again, I still have my stash of physical gold and Bitcoin directly held in a wallet for those SHTF scenarios.

I only put together this portfolio this year, so I haven't had a chance to see the paperwork/tax burden firsthand yet.

[boglerdude]

Schedule K-1 was a nightmare.

Make the world a better place, add value, get a real return: build an ADU or fix up a rental prop.

[vnatale]

Seems like this could fit in this topic ....

https://www.thinkadvisor.com/2023/09/26 ... 4107145G5I

Portfolio > Portfolio Construction

Gundlach: This Low-Risk Investment Mix Could Earn 7% Returns
By Dinah Wisenberg Brin


What You Need to Know
Jeffrey Gundlach, who specializes in fixed income, recommends allocations of only 25% to stocks now.
The rest should be split among long Treasury bonds, high-quality fixed income investments and commodities, he suggests.
He warns against buying the handful of stocks that have fueled the market's recent rise.

[dualstow]

Actually, Vinny,
whatchamacallit’s thread on Gundlach is what got us looking at commodities. I started this thread to not hijack that one.
You might be interested ⇢ viewtopic.php?p=239652#p239652

[Smith1776]

Buy commodities!

https://rationalreminder.ca/podcast/178

https://youtu.be/refBWkR7A-4

Inflation protection!

[boglerdude]

Most folks here have a house, mortgage, and are overweight stocks...

I do have years worth of beans in the garage tho

[dualstow]

Most folks here have a house, mortgage, and are overweight stocks...

I do have years worth of beans in the garage tho

And no K-1 for that

[Smith1776]

As I’m a Canadian I’m no expert, but COM says it’s non K-1 generating.

[Smith1776]

Bridgewater's take on commodities as they relate to inflation.


https://youtu.be/HTGO72r_ENI

[dualstow]

…
A couple of the issues that I've had with commodities historically was "solved" for me when I discovered CCOM.TO. (There is also an ETF in the US that tracks the same index called COM.)

https://funds.cifinancial.com/en/funds/ ... esId=14265

CCOM limits the volatility of traditional commodities, only goes long when the contract in question is in backwardation, and uses some momentum/trend signalling. Any time the fund is not going long it earns money market fund rates, so at least it's earning something while not invested.
…

Tempting (for the VP) for its high yield and, as you mentioned, lack of K-1 hassle.

This is a very indirect play, right? Then again, no one who invests in commodities actually buys them, save gold & a few others. Well, Andrew Forrest does. There’s a funny thread about that, I think in B’heads: Someone tried directly owning taking physical delivery on coffee associated with coffee futures. Executive summary: it wasn’t very good coffee.

All the same, buying this fund doesn’t feel like investing in commodities. It feels like investing in someone’s clever strategy that may or may not work.

[Smith1776]

…
A couple of the issues that I've had with commodities historically was "solved" for me when I discovered CCOM.TO. (There is also an ETF in the US that tracks the same index called COM.)

https://funds.cifinancial.com/en/funds/ ... esId=14265

CCOM limits the volatility of traditional commodities, only goes long when the contract in question is in backwardation, and uses some momentum/trend signalling. Any time the fund is not going long it earns money market fund rates, so at least it's earning something while not invested.
…

Tempting (for the VP) for its high yield and, as you mentioned, lack of K-1 hassle.

This is a very indirect play, right? Then again, no one who invests in commodities actually buys them, save gold & a few others. Well, Andrew Forrest does. There’s a funny thread about that, I think in B’heads: Someone tried directly owning taking physical delivery on coffee associated with coffee futures. Executive summary: it wasn’t very good coffee.

All the same, buying this fund doesn’t feel like investing in commodities. It feels like investing in someone’s clever strategy that may or may not work.

I literally had to look up what a K-1 even is haha. We don't have an equivalent to that in Canada. From what I gather it sounds like a hassle.

I should be clear that CCOM (the Canadian fund) and COM are funds from two completely different companies. They just happen to follow the exact same index. The problem with CCOM is that it's so new that there's no appreciable data anywhere, so I always use COM. This may or may not come back to bite me haha.

Yeah, the whole yield thing is something I really like. When the fund isn't invested you get some interest bearing return.

I never thought of it as an indirect way of getting commodities exposure, but I suppose that's a perfectly fine way of viewing it. I personally just think of it as a commodities equivalent of a low volatility stock fund.

returnscom.jpg (250.44 KiB) Viewed 10307 times

correlations.jpg (206.7 KiB) Viewed 10307 times

The above is a comparative return chart and correlation matrix between COM and the two biggest and most popular long only commodity funds in the U.S.: GSG and DBC.

Even without the correlation matrix, just eyeballing the chart one gets the feeling that you're generally getting what traditional commodity funds are delivering, except without the crazy drawdowns and volatilty. Look at the drop during COVID. Yikes!

[vnatale]

…

[Smith1776]

?

[vnatale]

I literally had to look up what a K-1 even is haha.

Try again!


If you, me, and Dualstow were either partners or owners of a Sub S corporation the K-1's tell us what we should be putting on our respective tax returns as our portion of the total tax results of either entity.

[Smith1776]

If you, me, and Dualstow were either partners or owners of a Sub S corporation the K-1's tell us what we should be putting on our respective tax returns as our portion of the total tax results of either entity.

Ohhhhh interesting.

[dualstow]

Every once in a while, I or a family member own an individual stock which requires a K-1 filing. I have an accountant and merely have to find it and submit it but sometimes even that is a headache. There was some stock my Dad owned that simply did not give it up on the website. I tried downloading, which required creating an account and supplying info. He tried calling the company. I was going back and forth with the accountant. Finally, the paper K-1 came in months after tax season. It was not pleasant.

That was some mineral company. In my case, it was an amusement park operator.

[vnatale]

Every once in a while, I or a family member own an individual stock which requires a K-1 filing. I have an accountant and merely have to find it and submit it but sometimes even that is a headache. There was some stock my Dad owned that simply did not give it up on the website. I tried downloading, which required creating an account and supplying info. He tried calling the company. I was going back and forth with the accountant. Finally, the paper K-1 came in months after tax season. It was not pleasant.

That was some mineral company. In my case, it was an amusement park operator.

When I worked for a CPA firm I was the lead person for a pediatrics group that was a partnership.

Before any of the members of the partnership could file their personal returns they needed for me to complete the partnership return so that we could issue them all their respective K-1's. The closer we got to April 15th the more requests we'd get for when those K-1's would finally be ready. We also did the personal returns for some of those partners so there was no time delay in us then quickly utilizing those K-1's. But some of the partners did not use us so they had to pass those K-1's to their own tax preparers.

Used to create a lot of them for both partnerships, LLCs, and S Corporations.

Prior to reading what you wrote above I did not know that any individual stocks also issued K-1's.

[dualstow]

I don’t quite remember, Vinny, but I think anything with LP for Limited Partnership in the name is going to have a K-1.
Cedar Fair is the amusement park stock I was trying to think of. Cedar Fair, L.P. ticker: FUN. K-1, not so much fun.

[vnatale]

I don’t quite remember, Vinny, but I think anything with LP for Limited Partnership in the name is going to have a K-1.
Cedar Fair is the amusement park stock I was trying to think of. Cedar Fair, L.P. ticker: FUN. K-1, not so much fun.

You are definitely correct as it is a partnership and not a C corporation. Until now I did not know that non-corporate businesses sold stock.

[D1984]

I don’t quite remember, Vinny, but I think anything with LP for Limited Partnership in the name is going to have a K-1.
Cedar Fair is the amusement park stock I was trying to think of. Cedar Fair, L.P. ticker: FUN. K-1, not so much fun.

You are definitely correct as it is a partnership and not a C corporation. Until now I did not know that non-corporate businesses sold stock.

Technically they weren't shares of stock. Since these were MLPs they were "units" of the partnership rather than shares of stock.

Cedar Fair was actually a bit of an oddball as it was one of the few non-energy related/non natural resource related companies to be a publicly traded MLP (I think there was a macadamia nut orchard company that was another MLP and maybe one or two other companies that weren't resource/energy related); after the 1986 TRA any new MLPs that didn't derive the vast majority of their income from natural resources weren't allowed to be taxed as partnerships (they would have to be taxed as C-corporations). Apparently the government felt it was losing too much tax revenue--since partnerships only pay taxes at one level rather than being double-taxed--and when in late 1985 or early 1986 the Boston Celtics became an MLP that was the last straw. After the 1986 law change no new non resource related MLPs were allowed but the old ones (including Cedar Fair--and for that matter, including the Celtics) were grandfathered in and allowed to keep MLP status.

[vnatale]

I don’t quite remember, Vinny, but I think anything with LP for Limited Partnership in the name is going to have a K-1.
Cedar Fair is the amusement park stock I was trying to think of. Cedar Fair, L.P. ticker: FUN. K-1, not so much fun.

You are definitely correct as it is a partnership and not a C corporation. Until now I did not know that non-corporate businesses sold stock.

Technically they weren't shares of stock. Since these were MLPs they were "units" of the partnership rather than shares of stock.

Cedar Fair was actually a bit of an oddball as it was one of the few non-energy related/non natural resource related companies to be a publicly traded MLP (I think there was a macadamia nut orchard company that was another MLP and maybe one or two other companies that weren't resource/energy related); after the 1986 TRA any new MLPs that didn't derive the vast majority of their income from natural resources weren't allowed to be taxed as partnerships (they would have to be taxed as C-corporations). Apparently the government felt it was losing too much tax revenue--since partnerships only pay taxes at one level rather than being double-taxed--and when in late 1985 or early 1986 the Boston Celtics became an MLP that was the last straw. After the 1986 law change no new non resource related MLPs were allowed but the old ones (including Cedar Fair--and for that matter, including the Celtics) were grandfathered in and allowed to keep MLP status.

So it actually was not stock ... which the description of it being stock had thrown me since I'd never seen it from a non-corporation.

[dualstow]

Sorry for throwing that description at you, Vinny. I used the Vanguard interface, it asked how many shares, I clicked 100 (or whatever), and bought them and collected dividends (which might also be called something else, who knows). And one day I got the K-1.

At no point did the interface say “by the way these are units of an LP and not shares of stock.” It was an unknown unknown.

More importantly, the reason I bought these…units, was because they were in John Slatter’s “100 Best Stocks of 2005” (or whatever year), which is one of the guides I used before bogleheads and Harry Browne/CraigR.

Like with buying and selling t-bills and notes and paper gold, I suppose I learned by doing.