How to Build a Commodity Guru Portfolio

When it comes to commodity investing, there is perhaps no bigger name in the industry than the legendary investor Jim Rogers. As it is our understanding, Rogers has a rather bullish outlook on agricultural commodities, citing that prices are still depressed on a historical basis. The Wall Street Guru has also expressed his belief in investing in emerging markets, specifically in Asia, as the demand for energy and agricultural goods from these economies continues to rise alongside the booming populations across continent.

For those investors who looking adopt an investment strategy that is inspired by the legendary investor (but one that is by no means endorsed by Jim Rogers), we outline an all ETF portfolio that is constructed with several key principles in mind that fall in-line with our understanding of Rogers’ outlook for various corners of the global market [for more agriculture allocation ideas subscribe to our free newsletter].

Portfolio Snapshot

First things first, here are the ETFs that we have chosen for this particular portfolio.

Ticker ETF Asset Type Allocation Expense Ratio
RJI Rogers International Commodity ETN Commodities 25% 0.75%
HAP Market Vectors Hard Assets Producers ETF Domestic Equities 20% 0.59%
MOO Market Vectors Agribusiness ETF International Equities 10% 0.59%
EWS MSCI Singapore Index Fund International Equities 5% 0.53%
ECNS MSCI China Small Cap Index Fund International Equities 5% 0.65%
EMLC Market Vectors Emerging Markets Local Currency Bond ETF Fixed Income 20% 0.49%
ALD Asia Local Debt Fund Fixed Income 10% 0.55%
CCX Dreyfus Commodity Currency Fund Currency 5% 0.55%
Weighted Average Expense Ratio 0.60%

As can be seen above, there are only three funds that are directly related to the commodity industry. Although the remaining ETFs are not necessarily “commodity” funds, they do offer exposure to several commodity producing countries, whose economies are closely tied to the commodities market.

Holdings Overview

Below is a brief overview of each component of this portfolio.

  • RJI: This ETF tracks the Rogers International Commodity Index, offering investors broad-based commodity exposure.
  • HAP: This ETF offers global exposure to largest and most prominent companies engaged in the production and distribution of hard assets.
  • MOO: This fund provides exposure to publicly traded companies worldwide that derive at least 50% of their revenues from the business of agriculture [see also Invest Like Jim Rogers With These Three Agriculture Stocks].
  • EWS: This ETF tracks an index designed to measure the performance of the Singaporean equity market.
  • ECNS: This fund tracks the performance of small cap Chinese equities.
  • EMLC: This bond ETF offers exposure to debt issued in local currencies by emerging market issuers.
  • ALD: This actively-managed fund gives investors broad-based exposure to the Asian bond market, including both developed and emerging markets.
  • CCX: This ETF invests in money market instruments in selected commodity-producing countries, including Brazil, Russia, and Australia.

Historical Return Analysis

Ticker 2008 2009 2010 2011
RJI -42.4% 26.5% 17.9% -7.9%
HAP n/a 42.5% 16.5% -11.7%
MOO -50.9% 58.7% 23.0% -11.4%
EWS -46.0% 67.4% 24.5% -18.7%
ECNS n/a n/a n/a -38.5%
EMLC n/a n/a n/a -3.0%
ALD n/a n/a n/a n/a
CCX n/a n/a n/a -3.1%
Portfolio n/a n/a n/a n/a
Compare to SPY -36.7% 26.3% 15.0% 1.2%
Compare to AGG 7.6% 3.3% 6.4% 7.7%

The adjacent table provides historical results for each component of this portfolio, as well as backtested results (as available) for the entire portfolio during 2008, 2009, and 2010. The table also shows how this portfolio performed relative to a popular stock market benchmark (SPY) and bond benchmark (AGG). Note that many of the funds included in this portfolio are fairly new to the market and thus performance data is quite limited.

During the market slump in 2008, commodity prices took a turn lower alongside equity markets. In the following years of recovery however, both equities and commodities staged an impressive rebound allowing for the portfolio to regain much of the lost ground [see also Jim Rogers Says: Buy Commodities Now, Or You'll Hate Yourself Later].

It’s interesting to note that emerging markets led the way higher in the years of recovery following the most recent financial crisis. Notice the significant outperformance of EWS versus both the stock and bond market benchmarks.

Portfolio Expenses

This portfolio is designed for long-term use consistent with a “buy, hold, and rebalance” strategy. As such, minimization of expenses is necessary to avoid return erosion resulting from compounding costs. To this end, we constructed a portfolio with a weighted-average expense ratio of 60 basis points, which is on the higher side of ETF investing but still significantly lower than fees charged by actively-managed mutual funds. The impact of this reduced cost structure over a hypothetical time horizon of 30 years is significant [see also The Ten Commandments of Commodity Investing]:

Growth of $1 Million Over 30 Years @ Annual Return Of:
Portfolio Expense Ratio 5% 10% 15%
Commodity Guru Portfolio 0.60% $3,635,095 $14,792,558 $56,536,012
Actively-Managed Mutual Fund Portfolio 1.00% $3,243,398 $13,267,678 $50,950,159

While this can certainly be used as an all encompassing group of holdings, those who wish to adopt an investment strategy that is inspired by Jim Rogers can also use this model portfolio as a smaller part of their overall group of holdings.

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Disclosure: Certain sections of this article were republished with permission from ETFdb.com. Click here to view the original portfolio. No positions at time of writing.

Disclaimer 

IMPORTANT NOTE:  Neither this website nor its strategies or other content are provided, authorized, endorsed, licensed, reviewed, recommended, approved, maintained, edited or managed by James B. Rogers, Jr. or any of his affiliates (all collectively, the “Rogers Group”).  Each member of the Rogers Group disclaims all responsibility and liability for use of this website and its strategies or other content.  Strategies and content do not or might not accurately or timely characterize or present the views of Jim Rogers.  Use at your own risk.

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Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

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