This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

How to Invest in Commodities Sensibly

NEW YORK (TheStreet) -- Commodities have become so overheated, it seems investors will go anywhere and risk anything to try to take advantage of the monster moves.

Recently, we saw another small commodity fund, Peak Ridge Capital, go bust and get sued for $40 million dollars by Morgan Stanley (MS), its broker and clearing dealer.

What's interesting about Peak Ridge is that it's connected, at least marginally, to a great rogue of commodity trading, Brian Hunter.

The same Brian Hunter sank the enormous Amaranth fund in 2006 with natural gas trades that cost the fund almost $7 billion dollars. This was by far the largest blowup of an independent commodity fund on record.

From Amaranth, Hunter managed to raise capital to try again at his own fund, Solengo advisors, which went bust as well. Its assets were bought by -- that's right -- Peak Ridge.

It was in natural gas trades that Peak Ridge got caught and was unable to meet margin calls -- trades that Peak Ridge "adviser" Brian Hunter specializes in.

I outlined Hunter's history today on CNBC's "The Call" with Melissa Francis.

The obvious question from this latest fund blowup is: Why do investors continue to throw money at dangerous funds run by risky traders?

The next question is: If the desire to be engaged in super-hot commodity funds can overcome all reason, what is the proper way (if any) to try and gain access to the big run in commodities?

There are three ways to directly gain access to commodity prices for retail investors, and each has positive and negative aspects.

The first is commodity index funds. These have the most direct correlation to commodity prices and track baskets of commodities using futures markets and over-the-counter contracts (swaps) to try and correctly mirror the motion of all commodities. PIMCO's Commodity Real Return Strategy fund is an example of one of the biggest of these.

The biggest problem for retail investors is the high minimum investments most index funds have. They are largely created and run for huge institutional portfolios, pension portfolios and high-net-worth investors. Many have a $100,000 minimum or more.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,084.52 +4.95 0.03%
S&P 500 2,001.28 +4.54 0.23%
NASDAQ 4,574.3410 +16.6460 0.37%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs