Vanguard Launches Commodity Strategy Fund
Vanguard announced plans for a new fund this month, taking a plunge into an unheralded sector with its Commodity Strategy fund.
The move is something of a volte-face for the Malvern, PA behemoth—less than a year ago, it restructured its Precious Metals and Mining offering, turning it into the more diversified Global Capital Cycles fund (VGPMX).
Scheduled to launch in June, Commodity Strategy will be an actively managed, open-end mutual fund, overseen by Vanguard’s own Quantitative Equity and Fixed Income Groups. It will offer only Admiral Shares, which require a $50,000 minimum initial investment, with an estimated expense ratio of 0.20%. It will be benchmarked against the Bloomberg Commodity Total Return Index, a basket of energy, crops, industrial metals, precious metals and livestock exchange-traded physical commodities contracts.
Commodities have historically been a volatile stock market segment; Vanguard’s new fund will have some guidelines in place designed to combat such volatility. It will hold a mix of commodity-linked futures and Treasury Inflation-Protected Securities to hedge against wild swings in value. This “controlled approach,” the firm claims, will help protect investors against inflation while still allowing the fund to beat its benchmark, all without taking on excessive risk.
But is outperforming a benchmark like the Bloomberg Commodity Total Return Index really much to crow about? Looking back at the last 15 years, commodities had a brief moment in the sun: 10 months of strong outperformance leading up to and during the financial crisis in 2007 and 2008. Outside of that, the sector has struggled. The Bloomberg index’s 15-year cumulative return through March 2019 is -34.6%. Over that same period, the S&P 500 had a total return of 243.2%. And as you can see in the chart below, commodities have lagged the market by a significant margin since late 2011, when their paths diverged.
Given that record, why is Vanguard taking the plunge now? A clue may be the share class structure: This new fund is aimed squarely at institutions and advisers, who often allocate a small percentage of their assets to commodities at all times, simply to enhance their overall diversification. For such investors, Vanguard’s low-fee promise may prove tempting. On average, commodity fund fees run about 1.20%, according to Vanguard. PIMCO’s popular CommoditiesPLUS Strategy, with $2.7 billion in assets, has net expenses of 0.77%.
Of course, it may well be that Vanguard’s skillful active managers can improve on their competitor’s results. But when deploying sophisticated derivatives strategies in a risk-laden sector is necessary to achieve even mediocre performance, we feel comfortable suggesting most investors should stay away.
Note: Chart shows hypothetical growth of $1,000 invested in the S&P 500 Total Return index and the Bloomberg Commodities Total Return index. Source: Morningstar.
We’d Like to Hear From You for Future Investing Topics
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New Podcast: Your Money’s Dynamic Duo—Investing & Financial Planning
Investing gets all the press, but when it comes to your overall well-being, financial planning can be just as relevant to your success. Your complete financial picture requires focus on expectations and goals, expenses you have today and those you’re preparing for down the road.
In the latest episode of The Adviser You Can Talk To Podcast, “Your Money’s Dynamic Duo—Investing & Financial Planning,” Director of Research Jeff DeMaso and financial planners Victor Colella and Andrew Busa discuss how our Adviser Investments team combines investing and planning to create long-term, risk-aware wealth plans for our clients.
Please click here to listen today, and we encourage you to share our podcast with anyone in your life who might find it of interest. And remember, if you’d like to get a notification every time a new episode is released, sign up for a free podcast subscription.
How to Know It’s Time to Hire a Financial Adviser
As an examination of the risks and benefits of even a single fund shows, it takes a lot of skill and effort to sniff out the best opportunities in the sea of options available to today’s investors. Of course, if you’re reading this, you’re likely to be among the savvy and knowledgeable few who feel confident in your ability to do just that. Is it still worth your while to bring in a pro? At Adviser Investments, we think it can be—and not just because we are confident in the advice we give and the services we provide.
We believe that the relationship between an adviser and a client is much like the one between a coach and an athlete. Even the most talented professional athletes still work with a coach—because they know that having an objective third party watching your performance and spotting ways to improve your technique is key to success. A good adviser can help you come up with a plan and stick to it through good times and bad, acting as the voice of reason that can help you stave off the panic and euphoria often induced by the market’s swings.
And perhaps just as important, they can help you trim your sails and keep on course during periods of greater market volatility. The 10-year bull market has provided plenty of puff so far, but many investors are worried that there may be choppier waters ahead. That makes it a good time to review your current investment strategy with a professional and decide if you’re prepared. Before you make a change in your investment plan, take a step back and review your goals, your appetite for risk and your timeline.
Have Your Goals Changed?
When an investment plan is working well, it’s all too easy to set it and forget it—even though the long-term goals the plan is designed to achieve may change over time. If you anticipate taking your career in a different direction, have developed health concerns or feel a need to be closer to family, there may be good reasons to make some changes to your portfolio. (Diversifying your holdings if you expect to be working longer, or redeploying into shorter-term fixed-income assets if you’ll need a large sum in the near future for a down payment, for example).
Still Have the Same Appetite for Risk?
Few investors want to miss out on outperformance, and the strong returns on equities in recent years have provided little incentive to seek out other asset classes. But simply by holding on to equities during a period of strong growth in stock prices, you may find your assets becoming more concentrated—and your portfolio’s posture more aggressive—over time. A seasoned professional can help you review your investments and suggest ways to diversify your assets so that you’re not taking on more risk than you’d like.
Has Your Investment Timeline Shifted?
When markets get volatile, your personal investment timeline becomes crucial. A shift to more conservative or income-generating assets may be warranted if your retirement is no longer a faraway prospect. Conversely, for mid-career investors, selling on a dip may do far greater damage to your long-term returns than holding pat.
Those are just a few of the concerns a good adviser can help you with—for more specifics on what to look for, please listen to our recent podcast on this topic.
There’s one final factor to take into consideration when deciding whether you should hire an investment adviser: The relief you’ll feel simply having someone to help you shoulder the burden of monitoring investments and making decisions for your portfolio. After all, most savvy investors share a common goal—building up enough of a nest egg to make sure they can retire in comfort and security and enjoy this new phase of their lives. Bringing on a pro to help keep a weather eye on day-to-day market shifts can help free you up to enjoy the journey, confident there’s a skillful navigator at the helm of your finances.
About Adviser Investments
Adviser Investments operates as an independent, professional wealth management firm with expertise in Fidelity and Vanguard funds, actively managed mutual funds, ETFs, fixed-income investing, tactical strategies and financial planning. Our investment professionals focus on helping individual investors, trusts, foundations and institutions meet their investment goals. Our minimum account size is $350,000. For the sixth consecutive year, Adviser Investments was named to Barron’s list of the top 100 independent financial advisers nationwide in 2018 and made its list of the top advisory firms in Massachusetts for the seventh year in a row in 2019. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015, 2016 and 2018.
For more information, please visit www.adviserinvestments.com or call 800-492-6868.
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