​iShares Commodities Select: A Diversified Strategy

MoneyShow  |

We diversified our Income Growth model portfolio last month by adding commodities through iShares Commodities Select Strategy, an exchange-traded fund (ETF), notes fund expert Bob Carlson, editor of Retirement Watch.

The commodities bear market appears to have formed its bottom. Demand for commodities is likely to increase because of continued global growth.

It will take producers time to reverse the investment and production cutbacks instituted during the bear market. Commodity prices should benefit from the trends for a while. Commodities also are a good hedge against inflation.

COMT can invest in any of the 24 commodities in the S&P GSCI and manages those investments using the proprietary quantitative models of its manager, BlackRock. The models try to capture intermediate and long-term factors.

The fund can invest in stocks of commodity producers as well as commodities futures and options. Its holdings recently were invested about 30% in stocks and 70% in futures and options. COMT issues 1099 forms at tax time, not K-1s. It also makes periodic distributions.

The top sectors of the stock portion of the fund recently were 16% in agriculture, 6% in base metals, 4% in timber, 3% in precious metals and 2% in energy.

The futures were invested 42% in energy, 15% in agriculture, 6.5% in base metals, 4.6% in livestock and 1% in precious metals. Energy is likely always to be the largest position and more than 25% of the fund.

Bob Carlson is editor of Retirement Watch.

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