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Trade Commodities Like Legend Jim Rogers

If you listen to Jimmy Rogers , you might think that the U.S. as we know it will cease to exist. While I do not share this opinion, I think there is value in understanding what he means and exploring some of the investment themes he believes are important.

Rogers has lent his name to a new line of exchange-traded notes from a company called Elements that slice and dice various commodities indices into easily accessible investment products.

There are four funds: Elements Linked to Rogers International Commodity Index Total Return (RJI), Elements Linked to Rogers International Commodity Index Agriculture Total Return (RJA), Elements Linked to Rogers International Commodity Index Energy Total Return (RJN) and Elements Linked to Rogers International Commodity Index Metals Total Return (RJZ). All were launched earlier this month.

The total return index is the broadest exchange-traded product that invests in commodities I have seen to date. It allocates 44% of assets to energy, spread across six different products; 34.90% to 20 agricultural products including barley and greasy wool; and lastly 21.10% to metals. Interestingly gold has a smaller weight than aluminum or copper.

According to data from the Elements Web site , the index underlying RJI has dramatically outperformed the Dow Jones AIG Commodity Index by over 6% annualized for the last five years. iShares has an ETN that tracks the Dow Jones AIG that trades under ticker DJP.

The three other funds are each tied to one of the three big components of RJI -- agriculture, energy and metals.

The agriculture index has been the laggard of the three, averaging 5% per year over five years compared with over 20% for the broader Total Return Index. Over the same period the energy index has averaged 26% a year and the metals component has averaged 32% a year. If you have been following these markets over the last few years, these performance numbers will not surprise you, but you probably realize they don't matter either.

That fact that the agriculture fund has lagged means nothing. It could lead or lag in the future. There is not an active or even a quasi-active strategy being employed, as there is with some equity ETFs. These funds simply offer a different static exposure that may or may not be better than funds from other companies with different mixes.

If you believe in owning the agriculture space you have three products to choose from: RJA, the PowerShares DB Agriculture ETF (DBA) or the brand new iPath DJ-AIG Agriculture Total Return Sub-Index (JJA).

DBA is the narrowest product with four commodities, JJA has seven commodities and, as mentioned, RJA has 20. Assuming you decide you want any exposure at all, the next decision becomes how to best own the space. Bigger bets on four products with DBA will appeal to some people who feel like they understand these markets well. Conversely some people will not want to make such isolated bets but will simply want broad exposure for asset allocation purposes.


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