Defined contribution plans are beginning to consider commodities as investment options, either through commodity index mutual funds or unitizing commodity investments from their defined benefit plans.
"Interest in commodities has grown over the past three years as plans were getting their brains beat out with equities; they wanted to know what else was out there," said Michael Francis, president of Francis Investment Counsel, Hartland, Wis.
Officials at the $167 billion Federal Retirement Thrift Investment Board, Washington, are planning to discuss with consultant Ennis Knupp & Associates, Chicago, the possibility of adding commodities, emerging markets and real estate investment trusts. Spokesman David Toro declined to say how the plan could invest in commodities. Gary Amelio, executive director and chief executive officer, did not return calls.
Robert Hunkeler, director of investments at International Paper Co, Stamford, Conn., said staff "might consider" adding a commodity fund to the $4.4 billion 401(k) plan for diversification. Any commodities investments would start in the $11 billion defined benefit plan, then be unitized for the 401(k) plan. (A unitized trust creates a pool of assets that is structured like a fund of funds, with the same asset allocation as the defined benefit fund. Each portfolio then is divided into smaller units, like the shares in a mutual fund, which are offered to DC plan participants.)
Other large 401(k) plan officials think the asset class is still too new.
Duke Energy Corp., Charlotte, N.C., does not invest in commodities in its $31.1 billion defined benefit and $2.4 billion 401(k) plans, said Michael Covington, secretary of the investment committee and general manager. "It's something we haven't even researched," he said.