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Fidelity has a number of equity mutual funds focused on the various aspects of the commodities industry, including the new Fidelity Global Commodity Stock Fund. An October Fidelity Viewpoint on commodity investing highlights some of the potential benefits that the commodity asset class may offer. Find out if commodity investing may be right for you.
The pie charts shown above are designed to show the allocation of an individual fund’s benchmark to the stocks of commodity producers from the energy, agriculture, and metals industries as of 9/30/09. The actual holdings of the funds themselves may vary from these allocations depending on the research findings of the funds’ portfolio managers. The allocations can also fluctuate according with the market capitalizations of the individual companies, industries, and sectors that comprise each benchmark. The pie chart graphics are updated on a quarterly basis to reflect the the most recent quarterly allocations for each fund's benchmark.
What are commodities or commodity stocks?
Generally speaking, commodities are raw materials derived from the earth that people consume directly (food), or are used to create products that people either buy, use, or consume on a daily basis. Some investors include commodities as part of their investment portfolios.
Why invest in commodities?
Many institutional investors allocate a percentage of their assets to commodities and commodity–related investments for the following reasons:
- Diversification — There is typically an imperfect correlation between the returns of both commodities and commodity stocks and other asset classes like U.S. stocks and bonds. Please remember that diversification does not guarantee a profit or protect against a loss.
- Potential return — Individual commodity prices fluctuate according to such factors as supply and demand, currency fluctuations, and inflationary pressures. At times in history, commodity prices have experienced multi-year bull and bear market cycles. In recent years, increased demand due to massive global infrastructure projects has greatly influenced commodity prices. In general, as demand rises, so may commodity prices.
How can one invest in commodities?
Investors may be familiar with investing in commodities through the use of futures contracts. As an alternate method of commodity investment, investors can purchase varying amounts of physical raw commodities (such as precious metal bullion). However, for many investors, investing in mutual funds or ETFs that seek to track the performance of commodity indices or the stocks of commodity–producing companies may be more practical.
Do commodity stocks and commodities deliver similar performance?
Not necessarily. Commodity stocks and commodities can rotate periods of outperformance. The chart below shows how commodities and commodity stocks have rotated periods of outperformance since 1999. Maintaining an allocation to each group may contribute to a portfolio’s returns over the long term.
What are the risks?
The commodities industry can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions.
Apart from the risks associated with general commodity investing, there are risks to investing in the common stocks of commodity–producing companies. You should be willing to accept the risks that come with exposure to foreign and emerging markets, including political, economic and currency volatility.
Introducing the Fidelity Global Commodity Stock Fund
How does the fund invest?
The fund invests in the common stocks of companies engaged across the commodities spectrum, maintaining a dedicated allocation to each of the metals, agricultural and energy industries. The fund specifically invests in commodity–producing companies, which are typically more influenced by the performance of raw commodities, than companies that operate further up the supply chain (such as mining or energy equipment makers, refiners, distributors, etc).
Exposure to multiple commodities in a single investment
The fund’s performance benchmark, the MSCI All Country World Commodity Producers Sector Capped Index, allocates its holdings approximately in thirds to each of the three commodity areas. Fidelity Global Commodity Stock will maintain a similar allocation, but with the flexibility to alter the weightings based on our forecasts for any particular sector or industry.
See the industry breakdown of the MSCI All Country World Commodity Producers Sector Capped Index below.
Who manages the fund?
Joe Wickwire, an industry veteran with over 20 years experience, is the portfolio manager. He draws on Fidelity’s expansive global research team to help find commodity producers with the potential for earnings growth.
Who should invest?
Investors who want to diversify their portfolio away from more traditional asset classes such as U.S. stocks and bonds may want to consider allocating a portion of their portfolio to a commodity focused investment such as the Fidelity Global Commodity Stock Fund.
The fund is considered non-diversified and may focus on a relatively small number of stocks/issuers which may result in greater volatility than diversified funds and the market as a whole.
Past performance does not guarantee future results. Diversification does not ensure a profit or guarantee a loss.
It is not possible to invest directly into an index.
The MSCI All Country World Commodity Producers Sector Capped Index is an equity–based, float–adjusted market capitalization–weighted index comprised of commodity producer companies based on the Global Industry Classification Standard (GICS®). MSCI further aggregates GICS® sub–industries into Commodity Producers Sectors: Energy, Metals and Agriculture sectors. The sector capped weighting scheme gives equal weight to the energy, metals and agriculture sectors at each Quarterly Index Review.
The Dow Jones AIG Commodity Index is a liquid and diversified benchmark for commodities as an asset class. The index is composed of futures contracts on 19 physical commodities that are traded on U.S. exchanges with the exception of aluminum, nickel and zinc which trade on the London Metal Exchange. Commodity futures contracts specify a delivery date for the underlying physical commodity. In order to avoid delivery and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as “rolling” a futures position. This index is a “rolling” index.
Before investing, consider the funds’ investment objectives, risks, charges and expenses. Contact Fidelity for a prospectus containing this information. Read it carefully.
