Home / Markets / Markets Analysis / Different types of funds

Different types of funds

Agriculture.com Staff 01/27/2006 @ 12:15pm

In recent years, funds have been more active in commodity markets. The term 'fund' has become commonplace when analyzing day-to-day market activity. However, there are different types of funds. This Perspective will explain the different types of funds.

Typically, funds are defined as one of three. They are the traditional commodity funds, index funds and hedge funds.

Traditional commodity funds generally follow technical indicators. The growth and expansion of these funds became prevalent in the 1980s. Current estimated investment value is near $124 billion. Often, when markets make major changes in trend, the traditional commodity fund is generally either entering or exiting.

The second type of fund is considered a hedge fund. Theoretically, these funds will chase a market that has an investment theme to it. Examples may include inflation, China or large fundamental changes, which may have an impact on supply and demand.

Lastly, and more prevalent as of late, are index funds. Index funds have a tendency to invest in a basket of commodities, and they are always long. As an example, someone who manages a large amount of investment money may invest a small percentage in commodities as an inflationary hedge.

Most analysts suggest they buy a basket of commodities as a hedge against inflation. Usually, they are long the front month and roll into the nearby contract, as first notice or last trading day approaches. Current estimates have their investment near $67 billion. For reporting purposes, index funds fall under the guise of commercials. Trying to understand the flow of cash grain and who may or may not be taking or making delivery has become more complicated with index funds.

These brief descriptions may provide better insight to some of the larger market players. If you have questions or comments, please contact Top Farmer at 1-800-TOP-FARM, ext. 129.

In recent years, funds have been more active in commodity markets. The term 'fund' has become commonplace when analyzing day-to-day market activity. However, there are different types of funds. This Perspective will explain the different types of funds.

CancelPost Comment
MORE FROM AGRICULTURE.COM STAFF more +

Farm and ranch risk management resources By: 07/07/2010 @ 9:10am Government resources USDA Risk Management Agency Download free insurance program and…

Major types of crop insurance policies By: 07/07/2010 @ 9:10am Crop insurance for major field crops comes in two types: yield-based coverage that pays an…

Marketing 101 - Are options the right tool… By: 07/07/2010 @ 9:10am "If you are looking for a low risk way to protect yourself against prices moving either higher or…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Soybeans Rally on Demand, Weather