Floods, strong markets boost commodity funds

Andrew Leckey

July 23, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Effects of tragic Midwest flooding have boosted the $l performance of many commodity funds recently, as crop damage estimates sent grain and soybean futures prices climbing.

However, the solid 9 percent gain in average commodity fund return this year is mostly attributable to red-hot U.S. and world bond markets and the currency markets, with metals adding a strong kick. This year's gain compares to a weak average return of just 1 percent for all last year.

"The past several weeks, flooding has had a positive effect on our existing investments in grain and meat markets, but we derive only 10 percent of profits from agricultural markets," said Mark Rosenberg, president of RXR Inc. in Stamford, Conn., general partner for Mark III Fund, up 33 percent in the last 12 months.

"Furthermore, we haven't increased our positions in those investment areas as the flooding tragedy has unfolded."

Agri-Commodities Fund and Agri-Fund, two funds offered by Heinold Asset Management, invest solely in agricultural contracts. After moving sideways for six months, they ran up gains of 11 percent and 9 percent respectively in July, noted Richard Wilkie, director of asset allocation for Chicago-based Heinold.

"However, our diversified funds have benefited mostly from the movement of the Japanese yen and the good run-up in precious metals based on inflation worries," added Wilkie. His Patriot III and Peavey III commodity funds lead the pack with gains of 95.12 percent and 68.11 percent over the last 12 months.

Diversified commodity funds typically have some agricultural exposure, though it has decreased dramatically the past few years as nonagricultural financial contracts gain importance.

"The fact [that] interest rates were hitting new all-time lows and bonds all-time highs overshadowed the flood-related price movement of soybeans," said Jay Klopfenstein, president of Norwood Securities in Chicago. "It's not like the earlier days of commodity funds, when they consisted only of agricultural and metals contracts."

Lois Peltz, managing editor of New York-based Managed Account Reports, a publication that tracks commodity fund data, said the goal of these funds that pool money to invest in futures is to provide diversification for an individual's portfolio. Initial investments can be as low as $2,000 or $5,000. Totaling more than $21 billion, commodity funds are usually started as limited partnerships with termination dates of 20 years.

"If the stock market does well, commodity funds usually don't, and vice versa," explained Peltz. "For less volatility, look for a more diversified fund, and realize funds in specific sectors will be more volatile."

Daniel Stark, president of Stark Research in Palatine, Ill., which tracks performance of 182 public funds through the Norwood Index, said commodity funds are not a short-term investment, but require a long-term approach.

"Watch out for fees with commodity funds, for you may see 6 percent 'loads' [initial sales charges] for some, while others are no-load," said Stark. "There can also be hefty management fees as well."

Top-performing commodities funds over the last 12 months, according to Managed Account Reports, were:

* Patriot III, general partner Heinold Asset Management, Chicago; $5,000 minimum; up 95.12 percent.

* Peavey III, general partner Heinold Asset Management, Chicago; closed to new investment; up 68.11 percent.

* Kenmar Performance Partners BVI (British Virgin Islands), Kenmar Management, New York; $26,000 minimum; up 54.63 percent.

* JWH Worldwide Fund, John W. Henry & Co., Westport, Conn.; $10,000 minimum; up 54.29 percent.

* Chesapeake Fund Ltd., KP Futures Management, Mankin-Sabbot, Virgin Islands; $50,000 minimum; up 51.16 percent.

* PB Diversified Futures Fund, Seaport Futures Management, New York; closed; up 47.94 percent.

* Tactical Commodity Fund, Tactical Investment Management, Haleiwa, Hawaii; closed; up 43.16 percent.

* Hutton Investors Futures Fund II, Hutton Commodity Management, New York; closed; up 41.49 percent.

* IDS Managed Futures, CIS Investments/IDS Futures, Chicago; closed; up 40.86 percent.

* Western Futures Fund II, Delong International/RJO Commodities, Chicago; closed; up 40.34 percent.

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