An Alternative Approach - Page 3 of 5

An Alternative Approach

planner at Apex Financial Services in Tucker Georgia. “This is an exchange-traded note (ETN) that’s linked to the Dow Jones-AIG Commodity Index, which is diversified among many commodities.” In addition to an exposure of about 33% to oil and gas, this index also tracks the price of soybeans, gold, aluminum, copper, and 11 other commodities.

            Sam Sudame, chief investment officer for Schultz Financial Group in Reno, Nevada, says that his firm prefers PIMCO Commodity Real Return Strategy (PCRIX), a mutual fund for institutional investors that tracks the same diversified commodity index. Since its inception in mid-2002 the PIMCO fund has had one 3% yearly loss, in 2006, and annual returns between 16% and 30% in every other calendar year.

            Chris Cordaro, chief investment officer at Regent Atlantic Capital, a wealth management firm in Chatham, New Jersey, also prefers a diversified approach to commodities investing. His recommended investments include UBS E-TRACS CMCI Total Return (UCI), an ETN designed to track the UBS Bloomberg Constant Maturity Commodity Index of 28 commodity futures contracts, ranging from coffee to zinc.


            Going for the gold. The diversified commodities investments listed above hold some gold but the exposure is modest: 7.4% for the Dow-Jones AIG index and 3.8% for the UBS Bloomberg index. If you’d like more gold in your portfolio, one option is SPDR Gold Trust (GLD), which holds gold bullion–nearly $20billion worth. This ETF, which moves up or down with the price of gold, has annualized returns of between 18% and 31% since its inception in late 2004.

            However, “investors in GLD may face a tax problem,” says Sudame. “Any long-term gains will be taxed as high as 28%, the rate for collectibles, not the 15% maximum rate for most investments.” He suggests First Eagle Gold (SGGDX), a mutual fund that invests in mining stocks as well as bullion. This fund has returned more than 19% a year for the last 10 years, through the first half of 2008.


Oil’s well. Among commodities, oil may be the most high-profile these days. When prices rose from $60 a barrel in 2007 to $147 in mid-2008, investors with a direct play on oil enjoyed hefty profits. Investing directly in oil has become much easier: In the past few years, several publicly traded investments have been introduced that track oil price movements. They include PowerShares DB Oil (DBO), United States Oil Fund (USO), and iPath GSCI Crude Oil Total Return (OIL).The iPath fund,