NEW YORK, May 9 (Reuters) - The gut-wrenching turn in commodities prices last week may have investors thinking again about the billions of dollars they poured into sector funds this year.
One strategy focused on longer-term plays, which has proven a winner in upturns, may be able to weed out the effect of speculation and soften the blows.
The Longview Extended Commodity Index this year returned more than 20 percent through April, more than double that of the Dow Jones UBS Commodity Index .DJUBS used to benchmark many funds, according to Longview and Dow Jones data. The gains should help cushion the downside, as was seen last week with precious metals, oil and agriculture assets sliding hard.
Last week’s drubbing reduced Longview’s year-to-date returns to 7.37 percent, and turned the DJ/UBS index negative.
The Longview index exhibits lower volatility than other commodities indexes, something likely to be more palatable to investors who have poured more than $12 billion into sector funds this year, more than all of last year, according to Lipper. The inflows, which are accelerating, have come as commodities have become popular with mainstream investors.
“It’s an environment where speculators have taken control.” said Joseph Barrato, chief executive officer of Arrow Funds, which benchmarks its commodities portfolio to the index. “You need that balance” of a longer term strategy, he said.
The Arrow Commodity Strategy (CSFFX.O) fund is up 3.72 percent over the three months through May 6, and ranks among the top 7 percent of commodity funds, according to Lipper.
Longview’s index splits from other indexes by choosing longer-term futures contracts instead of those that roll more frequently, said Jon Geyer, its chief investment officer. That saves costs and smooths the volatility that can trounce returns, he said.
Most components of the index are rolled annually in August, at which time it adds contracts as long as 18 months.
Looking at silver XAG=, which through Friday had plunged to $33.22 from $49.51 on April 28, Longview acquired its current holding in August at $19, and won’t roll that again until August this year, Geyer said. By doing so, the index has escaped the whipsaw effects of speculation, he said.
The Longview index has outperformed the DJ/UBS index every year since 2003, rising 24.2 percent last year to its peer’s 16.8 percent. In 2008 as the financial crisis hit, Longview lost 25.4 percent and the DJ/UBS declined 35.7 percent. (Editing by Leslie Adler)