Recent performance in the commodities markets hasn't sent investors running to buy pork bellies, but it hasn't deterred managers from pushing those markets either.
Among those hawking commodities is a motley crew of investment professionals led by notable investor James B. Rogers.
Through the Rogers Raw Materials Fund LP, Mr. Rogers and other members of the fund's general partner, Beeland Management Co. LLP, are advocating passive, long-only commodities as a diversifying alternative to the stock and bond markets.
"I'm totally convinced everyone should have some representation of raw materials" in their investment portfolio, Mr. Rogers said. Commodities are a very large part of world commerce, and deserve representation in investments as such, he said.
Mr. Rogers designed his own index, the Rogers International Commodities index, because he was dissatisfied with existing commodities indexes.
The Goldman Sachs Commodities index, popular with institutions investing in commodities, changes its components too frequently and focuses too much on energy, he said.
Equal-weighted indexes, meanwhile, gave too much weight to minor commodities, like orange juice, he said. (Orange juice comprises less than 1% of the Rogers index).
In designing his index, Mr. Rogers emphasized a world view, and included contracts like rice, which aren't included in most other popular commodities index. He chose 35 contracts traded on 13 different exchanges in North America, Europe, Australia and Asia.
He also avoided commodities that weren't actively traded, such as tallow, he said.
Mr. Rogers said he chose to go with a passive strategy for the fund because of the demonstrated success of indexing in equity markets, and his disinterest in actively managing commodities.
"I'm not going to presume I could outperform; (actually) I'm sure I could, (but) I'm not even going to try," Mr. Rogers said.
Commodities have been performing poorly, with the Rogers index down 18.7% year-to-date through Nov. 3.
But using back-tested data, the Rogers index has a 10.8% compound annualized return for the 14 years ended Dec. 31, 1997 with a standard deviation of 15.2%, according to Beeland numbers.
And with commodities prices depressed, Mr. Rogers said now is one of the better times to get into the asset class, although he believes commodities should be a permanent part of a portfolio.
Joining Mr. Rogers as either managers or owners of Beeland are: Ralph Wanger, chief investment officer for Wanger Asset Management LP, Chicago; Carlos Resendez, president of the Resendez Group and former executive director of the National Conference on Public Employee Retirement Systems; and Terry Savage, a syndicated financial columnist for the Chicago Sun-Times, according to offering documents.
Mr. Wanger, a stock picker, said he was attracted to commodities by their diversification to equity markets, where he professionally and personally has a lot at stake. He declined to say how much he has invested in the fund, except to say it is more than the minimum $500,000.
Richard L. Chambers, managing member of Beeland and principal of Hart Capital Management, Barrington, Ill., said the fund has raised about $6 million, with $1 million coming from a pension plan sponsor he declined to identify.
