We added a commodity-focused fund to the Kiplinger 25, our favorite no-load mutual funds, two years ago because of rising inflation.
The TCW Enhanced Commodity Strategy (TGABX) aims to beat an index that tracks a basket of commodities, including copper and cotton, by investing in futures contracts backed by high-quality short-term bonds.
Since then, however, inflation rates have declined and, on the whole, commodity prices have as well, despite recent gains in the value of oil and gold. Over the past 12 months, the Bloomberg Commodity Index has dropped 8.7%. The fund has fared even worse, losing 9.8% over the past year. It lagged the benchmark and peer funds that invest in a broad basket of commodities.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The short explanation is that in the back half of 2022, the fund's short-term bond portfolio, which accounts for about 90% of assets, was a drag on performance, as the Federal Reserve raised interest rates to fight inflation and cool the economy. (Bond prices and interest rates move in opposite directions.)
And so far in 2023, the decline in commodity prices overall has weighed on the fund's returns. "When you see slowing economies across the globe, you generally see softness in commodity prices," says Ruben Hovhannisyan, who co-manages the fund with three other TCW bond strategists.
Commodities could turn around in 2024
Some strategists expect commodity prices to move higher in 2024. The "commodity super-cycle bull continues to march on," says John LaForge, head of real asset strategy at Wells Fargo Investment Institute.
Hovhannisyan, on the other hand, says it's difficult to predict commodity cycles but that the fund should recover when the Fed begins to cut interest rates. "When the interest rate cycle turns," he says, "you should see some payback."
Commodities can be volatile assets at times. But a small stake in this fund as part of a broad portfolio can help hedge inflation and boost diversification. On the latter aim, the fund didn't disappoint in 2022. It gained 13% as both stocks and bonds posted double-digit declines.
Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related content
-
-
Putting Catch-Up Contributions Into a Roth 401(k) Isn't a Bad Idea
Roth 401(k) High earners will be required to put their catch-up contributions in a Roth 401(k).
-
Work Email Phishing Scams on the Rise: The Kiplinger Letter
The Kiplinger Letter Phishing scam emails continue to plague companies despite utilizing powerful email security tools.
-
7 Stocks to Give Your Grandchildren
A pick of stocks to give your grandchildren as long-term gifts.
-
Is It A Good Time To Cash In Your I Bonds?
Given certain economic forces, this may be the right time to cash in your I bonds.
-
How to Master Index Investing
Index investing allows market participants to use baskets of stocks and bonds to build the best portfolio to meet their goals. Here's how it works.
-
Dividends Are in a Rut
Dividends may be going through a rough patch, but income investors should exercise patience.
-
Real Estate Investing Is Down But Not Out
Real estate investing has gone through the wringer in recent years, but tactical investors can find solid income-building opportunities at a discount.
-
A Modern Guide to When You Actually Need to Tip
As new technology adds to social pressure, this modern guide to tipping reveals how to approach gratuities for everyone from your barista to the car mechanic.
-
How Stock Spinoffs Work — And How They've Performed
In theory, stock spinoffs should reward investors, but performance is mixed.
-
Is It Time to Invest in Japanese Stocks?
New shareholder-friendly policies should boost Japanese stocks.
