The Contrary Investing Report
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Jim Rogers Explains His Commodity Index Fund

by Brett on October 29, 2011

If you’ve studied Jim Rogers and are sold on the secular commodity bull market story, your next challenge is figuring out how you can invest in this trend.  Buying commodities themselves is quite a bit more complex than buying individual stocks because you need to do it via the futures markets, rather than your standard fare discount stock broker (Scottrade, etc).

Of course you could buy an index or ETF…but most of them are flawed in that they often fail to accurately reflect the price moves of the underlying commodities themselves.

Your best bet is probably to follow The Man himself, and invest in the index founded by Mr. Commodity Bull himself, Jim Rogers.  Our friend Drew Voros at Hard Assets Investor interviewed Rogers about his fund – great job by Drew, it’s the best explanation of the Rogers fund I’ve ever read:

HAI: You do change the index under extraordinary circumstances according to your filings. When was the last time it was actually rebalanced and why?

Rogers: There have been small things. Something may go from 20 basis points to 10 basis points or something like that. It’s mainly because of liquidity. We might have a slight change in one of the agricultural components, but we take it away from one component and add it to another agricultural component, which is comparable.

I noticed in one of your previous stories that other index guys were trying to take a swipe at my index, by saying everything in their index was a significant percentage. I would remind that person that the S&P 50 has 20 components which have 1 basis point, one one-hundredth of a percent. So if he thinks that small components should be dropped, he’s fighting the world. As far as I know, the S&P 500 is the most extensively known and used index in the world.

I wanted my index to be international. I wanted it to reflect the cost of doing business around the world. I wanted it to be broad based. None of the other indexes has rice, for instance, even though two-thirds of the people in the world eat rice every day.

The other problem I found with the others is that they’re U.S. centric. At the time I was looking for an index, most of them wanted to reflect what was going on in the time zones where they were working. They had U.S. and U.K. components, so that it’s easier to arbitrage against their customers, or just to compile the index. This was long before computers were so extensive. Now, of course, that doesn’t really matter very much.

And of course you have to consider liquidity. It doesn’t do you any good to have an index which is just academic. You’ve got to be able to use it.

Read HAI’s full interview with Jim Rogers about his commodity index fund here.


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