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Commodity indexes surpass funds

Commodity index investment products are helping mainstream investors ride the bull market in commodities. And as Bloomberg reports, this year the indexes have outperformed the leading commodity focused hedge funds.

Excerpt from, "Calpers beats Pickens as Commodity Indexes Clobber Hedge Funds".

T. Boone Pickens, the billionaire oil trader who predicted crude's rise to $100 a barrel, is lagging behind commodity-index investors for the first time since 2003.

Even California Public Employees' Retirement System, the 75-year-old pension fund that ignored commodities until eight months ago, is beating Pickens. Calpers invested in the Standard & Poor's GSCI Index, up 32 percent this year, while Pickens's BP Capital fund rose 22 percent.

From Dwight Anderson's Ospraie Management LLC to Global Advisors LP, commodities hedge funds failed to anticipate the 58 percent advance in oil and 31 percent gain in gold that powered indexes to their highest levels in two decades. While bullish forecasters at Goldman Sachs Group Inc. and Deutsche Bank AG advised clients to double down on commodities in January, they didn't expect this year's returns.


I have to say, this level of return from the overall commodity indexes was not what I was expecting for this year.

After a four or five year run in the GSCI, I expected a rather muted performance or even the start of an intermediate term correction in the major indices, with the potential for larger gains concentrated in several of the more overlooked individual commodities and commodity sectors.

It turns out Goldman Sachs was right in their 2007 call to "double down on commodities". I was wrong. Congrats to everyone who played it right, including the major pension funds like Calpers, who were highlighted in Bloomberg's recent article.

Whether or not the index players will be able to outperform the leading commodity hedge funds over the longer term is another issue, and it is one that is taken up in Bloomberg's piece.

Still, you have to give it to Jim Rogers and those who predicted the rise of commodity index investing and investors' growing acceptance of these products. They were absolutely right, and the market for these investment products is still growing.

Just last Friday, the Financial Times reported that JP Morgan and BNP Paribas were developing commodity index vehicles that will allow investors to make longer-term bets on commodity prices movements.

It was also noted that S&P had forecast a 20 percent increase in commodities index investment for 2008. Commodity investing has gone mainstream.

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