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Oppenheimer's Shuttered Fund Spotlights Challenges For Commodity Strategies
FYI: (This is a follow-up article) The roller coast ride continues for investors in commodity-focused funds, as witnessed Wednesday with the announced liquidation of the 19-year-old Oppenheimer Commodity Strategy Total Return Fund (QRAAX). Regards, Ted http://www.investmentnews.com/article/20160513/FREE/160519957?template=printart
Few here will remember that this fund made a lot of money for investors in the early part of the new millennia (roughly 1999-2005). I enjoyed double digit returns during some of those years as oil slowly climbed towards the $100 range. I bought the Class A shares in 1997 shortly after Oppenheimer received approval from the SEC, seeking to diversify. It was an early forerunner in the commodities mutual fund area - possibly the first such fund.
Actually, the fund did not hold pork bellies, lumber or barrels of crude, but invested in the commodities futures markets using derrivitives which allowed most of the fund's assets to sit in T-Bills or cash, earning additional income. A black box? Yes - for certain. But something happened in roughly the 2003-2005 period when they temporarily closed (to all new money) what had been a successful fund. Investors received a letter stating that Oppenheimer had uncovered structural weaknesses in how the fund was being operated which might cause significant losses and that it would be restructured over the coming months to reduce these risks. (I'm relying here on best recollections.)
When the fund reopened to new money, it wasn't the same fund. It became a perineal looser. As Ted's article mentions, the fund was clobbered by the worst commodities bear market in recent history. But it wasn't managed well either and also carried close to a 2% ER on Class A shares.
I took a gamble in early 2015 and converted my entire holding with Oppenheimer (5-10% of assets) to Roth. All was in this fund. It was a calculated risk that the fund would bounce sharply. But it never did and dropped another 15-20%. What saved my skin, so to speak, was that in early September '15 I split that money 4-ways. 25% remained in QRAAX. 25% each went into OPGSX (gold), OREAX (Real Estate) and OEMAX (EM bonds). All three of the new funds experienced sharp rebounds after that point. The Roth is now back to break-even. Even QRAAX has had a pretty good year so far (up 6.6%).
As noted earlier, I have little money with these guys. Looks to me like the quality of many of their funds has fallen during the 2 decades since I purchased shares. Since it appeared they were planning on returning the $$ from the liquidation directly to investors rather than reinvesting it automatically (which would have tax repercussions), I moved the money myself to their Capital Income Fund (OPPEX) for the time being. This amounts to moving from one black box into another. However, the new black box appears better managed.
Added note: Really appreciate the Shadow's heads-up on this pending fund liquidation. Nice to be informed early.
Comments
Actually, the fund did not hold pork bellies, lumber or barrels of crude, but invested in the commodities futures markets using derrivitives which allowed most of the fund's assets to sit in T-Bills or cash, earning additional income. A black box? Yes - for certain. But something happened in roughly the 2003-2005 period when they temporarily closed (to all new money) what had been a successful fund. Investors received a letter stating that Oppenheimer had uncovered structural weaknesses in how the fund was being operated which might cause significant losses and that it would be restructured over the coming months to reduce these risks. (I'm relying here on best recollections.)
When the fund reopened to new money, it wasn't the same fund. It became a perineal looser. As Ted's article mentions, the fund was clobbered by the worst commodities bear market in recent history. But it wasn't managed well either and also carried close to a 2% ER on Class A shares.
I took a gamble in early 2015 and converted my entire holding with Oppenheimer (5-10% of assets) to Roth. All was in this fund. It was a calculated risk that the fund would bounce sharply. But it never did and dropped another 15-20%. What saved my skin, so to speak, was that in early September '15 I split that money 4-ways. 25% remained in QRAAX. 25% each went into OPGSX (gold), OREAX (Real Estate) and OEMAX (EM bonds). All three of the new funds experienced sharp rebounds after that point. The Roth is now back to break-even. Even QRAAX has had a pretty good year so far (up 6.6%).
As noted earlier, I have little money with these guys. Looks to me like the quality of many of their funds has fallen during the 2 decades since I purchased shares. Since it appeared they were planning on returning the $$ from the liquidation directly to investors rather than reinvesting it automatically (which would have tax repercussions), I moved the money myself to their Capital Income Fund (OPPEX) for the time being. This amounts to moving from one black box into another. However, the new black box appears better managed.
Added note: Really appreciate the Shadow's heads-up on this pending fund liquidation. Nice to be informed early.