Transcripts

"Of Mutual Interest,"- Mid-Year Mutual Fund Review

SUSIE GHARIB: With the year now at the half-way point, many stock mutual fund investors are probably not pleased with their returns. But as Erika Miller reports in tonight's "Of Mutual Interest," many investors in commodity funds are in hog heaven.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Rising commodities prices have been a source of anxiety and trouble for consumers and businesses this year. After all, nearly every commodity group including oil, precious metals and farm products has been soaring in price. But those gains have been a boon for investors in commodity mutual funds. They're the top performing fund group this year. According to Lipper, which tracks mutual fund performance, commodities funds are up almost 30 percent for the year. They rose almost 20 percent in the second quarter. Lipper mutual fund analyst Jeff Tjornehoj says the funds are popular these days because they are an easy way to invest in real assets as protection against inflation. He says diversification is the other major appeal of the commodities sector.

JEFF TJORNEHOJ, ANALYST, LIPPER RESEARCH: In mathematical terms, it has a low correlation with the other parts of your portfolio. So while stocks may be going down and bonds seem to be sideways these days, commodities are accelerating.

MILLER: Robert Baker, portfolio manager of the Oppenheimer Commodities Strategy Total Return Fund says strong global demand is another long term bullish factor.

ROBERT BAKER, PORTFOLIO MANAGER, OPPENHEIMER COMMODITIES STRATEGY TOTAL RETURN FUND: The demand has increased immensely over the last 10 years and supply has not been able to keep up. Ten years ago, there was sufficient inventories and they were rather large. They've dwindled to record, well not record lows, well, 60, 50 years low in some cases.

MILLER: However, investors should be aware that commodities funds differ greatly in the types of securities they can buy. Some portfolio managers use futures and options contracts. Others trade shares of commodity producers, like Exxon and Newmont Mining for example. One big concern is that commodities prices could be in a bubble, similar to technology stocks in the late 1990's.

TJORNEHOJ: This is quite a bit different in that there really is underlying value to commodities. For, instance, gold, it's never worth zero unlike a tech stock. However, I think there is also a lot of speculation built into this market, so I can't be certain any more than anyone else that commodities prices will continue to escalate.

MILLER: Like other sector funds, commodities funds tend to be volatile. This year, the volatility has been mainly to the upside. But, experts say that could change if stock and bond funds start to gain ground. Erika Miller, NIGHTLY BUSINESS REPORT, New York