Some questions regarding commodity funds (incl. ARCIX, GCC and USCI)

BWG

I hold ARCIX and plan to replace it with a broad-based commodity ETF. I am looking at USCI and GCC. I would appreciate any comments/suggestions with respect to:
1) USCI vs. GCC?
2) How well would USCI or GCC replace ARCIX?
3) Downsides of USCI and GCC? Are there any other broad-based commodity ETFs that you would suggest instead? I am not looking at commodity stock funds but commodity funds and am particularly interested in some of those that could have captured the recent spike in some commodities (e.g., coffee) and the fall in others (e.g., corn) through tactical allocation.

Thanks in advance!

scott

You'll get a k1 tax form if you go with either etf and most commodity futures etfs in general. Additionally both are effectively index etfs vs some degree of active management for arcnx/arcix. Personally I'd much rather stick with the mutual fund.

mrdarcey

1) USCI is essentially a market-cap weighted index if memory serves. GCC attempts to provide something different by weighting 16 or 17 different commodities equally (out of a list of 30+, IIRC. Their algorithm attempts to give a value slant). The upshot is you get more exposure to agricultural products and some different precious metals and possibly better diversification from USCI, which will overweight oil/energy and, to a lesser extent gold. GCC also incurs far more hidden expenses because it rebalances daily.
2) No idea.
3) They are commodity funds. As Scott points out, its worth looking at what account you hold them in for tax purposes. USCI is available commission free @ Schwab. DBC is another broad-based commodity fund available commission free at TD. I don't believe GCC is available commission free anywhere.

scott

DBC also results in a k1 form. Ive become used to k1s but they are still a pita. Mrdarcey detailed usci/GCC well.

rjb112

BWG said:

I hold ARCIX and plan to replace it with a broad-based commodity ETF. I am looking at USCI and GCC.

Are there any other broad-based commodity ETFs that you would suggest instead? I am not looking at commodity stock funds but commodity funds and am particularly interested in some of those that could have captured the recent spike in some commodities (e.g., coffee) and the fall in others (e.g., corn) through tactical allocation.

BWG, is your desire to "replace it with a broad-based commodity ETF" at odds with your desire for "those that could have captured the recent spike in some commodities (e.g., coffee) and the fall in others (e.g., corn) through tactical allocation?"

If you are looking for a broad-based ETF, you will not get tactical allocation from that vehicle.

I'm not very familiar with commodities investing, but it seems to me to be very easy to find broad-based exposure to commodities thru etfs, and much more difficult to find an actively managed commodities fund with a manager who will tactically allocate, as you mention. And good luck finding a manager who will "correctly" allocate tactically, in a way that outperforms the broad-based funds. I think it would have been very difficult to capture the spike in coffee and fall in corn that you mention.

If you wanted to do that tactical allocation yourself, finding the investment vehicles is not difficult. For coffee, JO and CAFE are the vehicles. Clever trading symbols for those two coffee etfs!

JO iPath Dow Jones-AIG Coffee Total Return Sub-Index ETN

CAFE iPath Pure Beta Coffee

scott

Seconding rjbs comments in particular the first paragraph. As noted, active will be more likely to capture sustained moves in something like coffee. To really get moves you're going to have to move between specific etfs but you're going to end up with a lot of k1s if you do that to a significant degree.

Also I like the commodities exchanges as a long term holding. ICE is a long term holding for me. Those stocks are volatile though and not something I'd recommend for anyone the least bit conservative.

Junkster

I was a commodities broker 40 years ago. Their returns (funds) since the 70s (allowing for the ones that vanished) is woeful. One glance at Morningstar's Commodity Broad Basket category for the past 3 and 5 years tells it all. Over the intervening years since I was a broker I heard all about shortages of this and that commodity but overall shortages always seemed to turn into surpluses and vice versa with the net result being a terrible long term investment vehicle. Probably the worst of the worst is silver. I remember how it was manipulated to over $50 an ounce in the spring of 1980. Look at it now.

Edit Just looked at a chart of GCC back to 2008. Again, pretty much says it all.

rjb112

Junkster said:

Edit Just looked at a chart of GCC back to 2008. Again, pretty much says it all.