Commodity Fund PCRDX vs PCLDX...or other suggestions

bee

Looking to add a commodity fund to my portfolio. These two funds, PCRDX and PCLDX, use two different strategies which I am not smart enough to understand completely, but I am trying. Both funds use a derivative strategy. PCRDX is a real return fund which hedges for inflation. PCLDX has outperormed PCRDX over the last year.

Wondering if other have an opinion on one, both ot other commodity funds. A strong dollar may further hurt these investments, but they seem oversold to me.

scott

Despite their recent underperformance, long-term I still like funds with some degree of active management, such as HDCCX/Highbridge or the ARCN/AQR fund, that some ability to capitalize on trends. But that's just me.

http://finance.yahoo.com/echarts?s=PCRRX+Interactive#symbol=pcrrx;range=20100315,20130726;compare=hdccx+pcrix;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

PCRRX vs HDCCX since start for HDCCX.

TonyGstring

Own both. The funds use derivatives to gain commodity exposure via futures, and put the rest of capital in fixed-income. The difference is PCRDX uses TIPS, whereas PCLDX invests in short-term bonds. Personally prefer PCLDX as TIPS are more correlated to interest-rate risk and have a longer duration opposed to short-term instruments.

If you decide to invest in PCRDX, see if your broker offers HACMX. It has a lower expense ratio.

AndyJ

Reply to @scott: According to the M* analyst report, PCLIX/PCLDX has some limited flexibility to stray from its index, over- or under-weighting by a few points as they see value. No idea how that compares with Highbridge's flexibility ... but PCLIX has stayed pretty much flat during the commodity falloff.

Ted

In my opinion, commodity have not been the place to be in 2013. And over an extended period of time, they have showen negative returns as much as 10/12%
Regards,
Ted
M* Commodity Fund Returns: http://news.morningstar.com/fund-category-returns/commodities-broad-basket/$FOCA$BB.aspx

bee

Reply to @TonyGstring:
Thanks Tony G, good comments and suggestions.

bee

Reply to @Ted:

My very reason for considering this invest is it overall recent poor performance. On a 5 year performance basis many of these commodity funds are as oversold as PM funds... some as much as 85% off their highs.

I see this as a reason to monitor these funds with the idea of buying low with hopefully some upside potential. My PM fund, USAGX, is up 20% from when I bought it a month ago.

Investor

Reply to @TonyGstring: There are short duration TIPS as well although the ones used by PCRDX seems to be longer duration type.

TSP_Transfer

Too good to be true? Large discount to NAV + monthly cash distribution @ annual rate of more than 9%.We probably need Scot's investigative prowess on these.

SYMBOL TIME & PRICE


XCFDX Jul 26 18.94 (NAV)

CFD 11:13am EDT 16.98

XCTFX Jul 26 21.16 (NAV)

CTF 11:20AM 18.39

http://www.nuveen.com/CommodityInvestments/Default.aspx

https://www.google.com/finance?q=NYSEMKT:CTF&ed=us&ei=9YL2UYiOMoK9qQH3FA

https://www.google.com/finance?q=NYSEMKT:CFD&ed=us&ei=CYz2UcCmCMbxrAGW7AE

bee

Reply to @TSP_Transfer:

Thanks TSP, Are you able to access these at reasonable fees. Discount to NAV and cash distribution of 9% could also be a reason for concern (is it sustainable and positive?). Thanks for your efforts here. Hoping Scott and others chime in here as well.

scott

The Nuveen funds are sub-advised by Gresham Asset Management, who also subadvises the commodity futures portion of the Cohen and Steers Real Asset Fund. Their portion of the Cohen and Steers fund is 25-35% and is actively managed.

CFD also uses an options strategy, as well as Gresham's TAP program (Gresham’s Tangible Asset Program® (TAP®), is a long-only, diversified, tangible commodity futures investment strategy with a 26-year real-time track record. The TAP methodology balances rules-based construction with market-driven implementation and is designed to maximize return through effective trading and minimize volatility by constraining sector and individual commodity weightings as well as a systematic interim rebalancing strategy.) "An integrated program of writing commodity call options (the “options strategy”) designed by Gresham to enhance risk-adjusted total return of the Fund’s commodity investments (TAP® and the options strategy are together referred to as TAP PLUSSM)"

Here is a big issue with CFD and CTF - they are structured as commodity pools and as a result you will get a K-1 form at tax time if you invest in either for any length of time. That is an issue with a substantial amount of commodity futures ETFs and also, unfortunately, with these CEFs.

I haven't really looked at CTF but find it dismaying that a long-short strategy has considerably underperformed a long-only strategy (CFD) in the last year.

CFD hasn't performed too badly in comparison to other commodity funds in the last year and the monthly dividend is nice, but I don't want another K-1, even with the discount to NAV. CTF is disappointing.

From the Cohen and Steers 1 Year Review or the Cohen and Steers Real Asset Fund regarding the fund's commodity holdings: "Commodities
The Fund’s investments in commodities generated a positive
total return for the period, and outperformed the -1.1%
return of the Dow Jones-UBS Commodity Index. Factors
that contributed to this performance include the continued
uncertainty in Europe, slowdown in China and periods of
unrest in the Middle East. Markets also contended with the
mid-year drought that impacted U.S. crop production of
corn, soybeans and wheat. For the one-year period since
inception, agricultural commodities contributed positively to
performance, while investments in industrial metals, precious
metals and livestock all detracted from performance."

The Cohen and Steers Real Assets fund has done a bit better (1-1.5% or so) than the T Rowe Real Assets fund, but the Cohen and Steers fund does have a higher ER.

TSP_Transfer

Thanks once again Scott for your insight.I am always impressed with the scope and depth of your investment knowledge and ability to express it clearly .While all investments carry varying risks ,I have always thought commodity futures the riskiest.And when you add in a long/short strategy ,that risk is amplified.But where there is risk.........
The discussion has highlighted some ideas and avenues for commodity fund investments and the risks and tax implications they may involve.Now just point me to the bottom! Or directions to http://www.nyra.com/saratoga/saratoga-race-course-2013-fact-sheet/. I hear it's beautiful!
Another long/short commodity fund.
https://www.google.com/finance?q=MUTF:RYLFX&ei=Vaf2UciXGtKvqQHJJQ&ed=us

TonyGstring

Reply to @bee: No problem. Congrats on your 20% gain in the PM fund. Waiting for some monies to transfer before investing more into commodities, decided on TGLDX NTF @ Fidelity.

Ah, the K-1. Avoid like the plague!