Understanding Commodity Funds: Types and Investment Strategies

Commodity funds represent a growing sector of the investment market today. If you are considering investing in a commodity fund, it is important that you understand the different types of funds in the market. Here are a few of the different types of commodity funds that are available.

Direct Holdings

One type of commodity fund that is available for you to invest in is the kind that has direct holdings of their commodities. This means that they actually hold the commodities and warehouse them. For example, for each share that a silver fund sells, they keep a certain amount of silver physically on hand.

Futures Holdings

Another type of commodity fund is one that holds futures contracts on certain commodities. This means that they are not actually taking physical delivery of the commodities that make up the fund. Instead, they take out futures contracts on the commodities and are speculating on the price of these commodities. These funds will often also hold U.S. Treasuries and other short-term debt instruments to make up the total portfolio holdings.

Stock Holdings

Another type of commodity fund deals with actual stocks from the companies that deal with these commodities. For example, they may invest in a variety of stocks from different oil companies.