Interested in commodities investing?
Our newest actively managed fund is our first stand-alone commodities futures fund. It’s designed to give you access to this large and distinct asset class of physical goods that includes agricultural products, livestock, precious and industrial metals, and energy products.
In keeping with our long-term focus of driving down investing costs, the Commodity Strategy Fund’s estimated expense ratio of 0.20% is 84% lower than the 1.24% average of competing broad-based commodity funds.*
A sophisticated investment strategy
The Commodity Strategy Fund relies on various derivatives—financial contracts whose value is based on a commodity, not a direct investment in the commodity itself.
As collateral for these trades, the fund also invests in a combination of short-term Treasury inflation-protected securities (TIPS) and Treasury bills (T-bills).
The fund requires a minimum investment of $50,000 and is offered as Admiral™ Shares.
The role of commodities in your portfolio
“The Commodity Strategy Fund will be a low-cost, broad-based option for investors seeking inflation protection for an already diversified portfolio,” said Matthew Brancato, head of Vanguard Portfolio Review Department. “We believe the commodity exposure can serve as an effective inflation hedge and also diversify stock and bond risks.”
As a diversifier
Because commodity returns generally tend to move independently of the markets, the Commodity Strategy Fund offers the opportunity to expand your portfolio to include another asset class. Investments in the fund may include:
- Futures contracts, which are agreements to buy or sell specific amounts of a commodity, such as grain or oil, for an agreed-upon price at a future date.
- Commodity swaps, which are agreements between 2 parties to exchange cash flows dependent on the price of an underlying commodity.
As an inflation hedge
Commodity-related investments can also be appealing if you’re concerned about inflation, the broad increases in the prices of goods and services. As the prices of the items we buy rise, the prices of commodities used to make them also tend to rise, potentially mitigating the inflation risk.
Commodities may also help protect against unexpected inflation, or shocks. Although historically infrequent, these inflation surprises can be volatile and difficult to predict. When they do occur, they can negatively affect purchasing power.
The risks of investing in commodities
Commodities have some unique risks, including:
- High volatility due to boom-and-bust cycles of economic growth and decline, driven by natural or political events such as devastating hurricanes or military conflicts.
- Potential low returns over long periods, which could be exacerbated by lengthy periods of deflation.
As an actively managed fund, the Commodity Strategy Fund also assumes the risks commonly associated with active strategies, including periods of underperformance.
Managing risks with TIPS & T-bills
The Commodity Strategy Fund uses TIPS and T-bills to help reduce the effect of short-term inflation and as collateral for its exposure to commodities derivatives.
- TIPS are the only bond investment whose value is linked directly to inflation. They guard against rising prices by indexing the principal amount of the bond to inflation.
- T-bills are short-term discounted securities with a maturity of one year or less, making them one of the safest bond investments.
Experienced portfolio management
Vanguard Quantitative Equity and Fixed Income groups are the fund’s advisors, bringing their deep experience and expertise to the fund’s management.
The Quantitative Equity Group has managed commodity strategies as part of Vanguard Managed Payout Fund for more than 10 years.
The Fixed Income Group manages one of the largest TIPS funds—Vanguard Short-Term Inflation-Protected Securities Fund—which currently has more than $29 billion in assets under management.**
By using a sophisticated blend of TIPS, T-bills, and commodity derivatives, the fund managers strive for better returns over time, along with a high degree of inflation protection, without taking on excessive risk. They attempt to outperform the returns of the Bloomberg Commodity Total Return Index, a diverse commodity futures index. Returns, however, may vary from the benchmark because of the fund’s investment in TIPS and the actively managed commodity exposure.
A record of active management
Although many investors know us for our low-cost index funds, Vanguard has a 45-year record of accomplishment as one of the largest and most successful managers of actively managed funds. Today, we oversee more than $1.3 trillion in actively managed assets under management in more than 70 funds. And as of March, 31, 2019, Vanguard’s actively managed funds consistently outperformed their peer averages by 76% over 1 year, 92% over 5 years, and 88% over 10 years.†
*Source: Lipper, a Thomson Reuters Company, as of September 30, 2018. Data are based on Lipper peer-group average expense ratios.
**As of April 30, 2019.
†For the 1-year period, 96 of 127 Vanguard active funds outperformed their peer-group averages; for the 5-year period, 98 of 106 Vanguard active fund outperformed their peer-group averages; and for the 10-year period 88 of 100 Vanguard active funds outperformed their peer group averages. All data as of March 31, 2019. Results will vary for other time periods. Only funds with a minimum 1-, 5-, and 10-year history, respectively, were included in the comparison. Source: Lipper, a Thomson Reuters Company. The competitive performance data shown represent past performance, which is not a guarantee of future results. View fund performance.
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
Investments in bonds are subject to interest rate, credit, and inflation risk. Although the income from U.S. Treasury obligations is subject to federal income tax, some or all of that income may be exempt from state and local taxes.
Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility.
The fund could lose all, or substantially all, of its investments in instruments linked to the returns of commodity futures or other commodity investments. Commodity futures trading is volatile, and even a small movement in market prices could cause large losses.