First, we select the top trending category from more than 200 categories listed on MutualFunds.com based on the percentage increase in monthly viewership. Then, we choose the top three funds with the highest one-year trailing total returns from the top trending category. To ensure funds’ quality and staying power, we only look at those mutual funds with a minimum of $100 million in assets and a track record of at least three years. We also remove those mutual funds closed to new investors and not available for investment outside registered accounts such as retirement or 529.
In this edition, we take a closer look at trending Commodity Funds for investors.
Commodities have become increasingly popular given rising interest rates and geopolitical tension. In addition to their positive correlation with inflation, commodities have a low or negative correlation with stocks and bonds, providing valuable diversification. Rising energy prices have also helped many commodity funds outperform, with crude oil prices reaching their highest levels since 2008, following the Russian invasion of Ukraine.
Be sure to check out the Commodity Funds page to find out more about the other funds in this category as well.
The PIMCO CommoditiesPLUS® Strategy Fund (PCLAX) comes in first on this week’s list. It provided an exceptional trailing one-year return of 62.74% with a 1.19% expense ratio.
The fund combines commodity-linked investing and active fixed-income management to provide broad access to commodity market returns with enhanced return potential from actively managed bond collateral.
A team of five portfolio managers co-manages the fund, providing a broad range of expertise in commodities and fixed-income. Nicholas Johnson has the longest tenure with 12 years in strategy and 18 years of industry experience. Before joining PIMCO in 2004, he was a research fellow at NASA’s Jet Propulsion Laboratory.
The fund’s portfolio has 50% exposure to energy, 21% exposure to agriculture, 14% exposure to industrial metals, and 8% exposure to precious metals. Meanwhile, its fixed-income portfolio has an effective duration of 0.55, introducing minimal interest rate risk.
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2. Vanguard Commodity Strategy Fund (VCMDX)
The Vanguard Commodity Strategy Fund (VCMDX) comes in second. It offered a 56.23% trailing one-year return with a 0.2% expense ratio.
The fund leverages commodity-linked derivative securities to maximize inflation protection and reduce the long-term volatility of a well-diversified, balanced portfolio. In addition, the commodity-linked exposure is collateralized with a mix of short-term Treasury Inflation-Protected Securities (TIPS) and Treasury Bills (T-Bills).
Joshua Barrickman, CFA, and Fei Xu, CFA, co-manage the fund. Mr. Barrickman is a Principal of Vanguard and heads its Fixed Income Indexing Americas, having worked at the firm since 1998. Mr. Xu is a Portfolio Manager at Vanguard and has been with the firm since 2004.
The fund’s portfolio has exposure to 32% energy, 22% grains, 19% precious metals, and 15% industrial metals. In addition, the portfolio holds about 20 bonds with an average duration of 1.7 years and a 0.8% yield to maturity, including 85% U.S. government bonds.
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3. PIMCO CommodityRealReturn Strategy Fund® (PCRAX)
The PIMCO CommodityRealReturn Strategy Fund® (PCRAX) rounds out the list. It provided a 54.19% trailing one-year return and a 1.19% expense ratio.
The fund provides investors with access to broad commodity market returns with enhanced return potential from Treasury Inflation-Protected Securities (TIPS).
Nicholas Johnson, Greg Sharenow, and Steve Rodosky co-manage the fund with an average tenure of just over three years. Nicholas Johnson has the longest tenure and also manages the aforementioned PIMCO CommoditiesPLUS® Strategy Fund.
The fund includes exposure to 32% energy, 28% agriculture, 18% precious metals, 16% industrial metals, and 5% livestock. Unlike the PIMCO CommoditiesPLUS® Strategy Fund, the fund’s bond portfolio has an average effective maturity of 2.21 years and a 2.75-year duration, presenting higher interest rate risk compared to the other funds mentioned earlier.
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The Bottom Line
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Note: Data as of March 3, 2022. Many commodity-focused mutual funds pay special or variable distributions to shareholders. As a result, we haven’t included traditional “yield” in our analysis, and interested investors should seek more information about upcoming distributions.