Weighing 2 Commodity Producing Funds

NEW YORK (TheStreet) - When it comes to accessing commodity-producing companies, there are a wide variety of ETF and mutual fund options investors can consider.

For instance, funds such as the Market Vectors Agribusiness ETF ( MOO), the SPDR S&P Metals & Mining ETF ( XME), and the iShares Dow Jones U.S. Oil Equipment & Services Index Fund ( IEZ) are strong choices for investors looking to gain exposure to companies that will benefit from specific pockets of strength within the commodities realm.

However, in today's environment where strength appears to be present across all reaches of the commodities spectrum, a more diversified product may prove to be the most suitable and effective option for conservative investors. The Market Vectors RVE Hard Assets Producers ETF ( HAP) and the Fidelity Global Commodity Stock Fund ( FFGCX) are two funds which offer investors one-stop-shop access to all walks of the resources industry, offering exposure to miners, energy producers, and agricultural goliaths under one roof.

Despite the similar investment strategies of these products, HAP has managed to score a slim lead on its mutual fund competitor throughout the opening weeks of 2011. By digging into the internal workings of these two funds, it is possible to identify slight variations have led to their deviation from one another.

For instance, FFGCX's heavier exposure to miners within its top 10 holdings has likely played a role in subduing the fund's gains in recent weeks. Whereas HAP's index is commanded by agriculture and energy-related companies such as XOM, Potash of Saskatchewan ( POT) and Deere ( DE), FFGCX is headlined by BHP which, comparatively has lagged. Vale and Rio Tinto ( RIO) can also be found among the mutual fund's top 10 holdings.

Deere is one company that is noticeably absent from FFGCX's top holdings. The recent food rally has proved wildly beneficial for this agricultural machinery manufacturer, lifting shares of DE 13% this year. Looking ahead, the company appears primed for further strength. This week the firm reported record first quarter earnings. Following up the announcement, Deere raised its outlook for the coming year.

While HAP dedicates 4% of its index to this firm, within FFGCX, DE accounts for only 0.016% of its portfolio.

Ultimately, although HAP has seen a slightly stronger start to 2011, I would not advise investors to write off FFGCX.

HAP has traditionally struggled to generate substantial investor interest. Although its investment strategy and short-term returns are attractive, the fund currently changes hands only 40,000 times on average each day. This low liquidity could prove hazardous for investors looking to move in and out of this fund in a quick manner.

Additionally, the fact that FFGCX boasts a manager who takes an active role in directing the fund to profit may make the fund more attractive to cautious investors. In the event that an abrupt shakeup takes place within the commodities industry down the road, the mutual fund will be able to shift and adapt quickly in order to weather the hit.

Active management comes at a cost, however. FFGXC carries a 1.10% expense ratio and requires a minimum investment of $2,500. The passively managed HAP meanwhile charges 0.65%. Additionally, investors holding FFGCX for less than 30 days are charged a 1.0% early redemption fee.

Commodities are sure to remain in vogue in the coming months as improving economic conditions drive demand for both hard assets and soft agricultural commodities. Investors have a number of options to consider when it comes to positioning their portfolios for strength. HAP and FFGCX are two ways to invest in companies in this attractive market region.

Written by Don Dion in Williamstown, Mass.

RELATED ARTICLES:



At the time of publication, Dion Money Management did not own any of the equities mentioned.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

More from ETFs

What Bad Weather? Kohl's Shares Spike as Same-Store Sales Jump

What Bad Weather? Kohl's Shares Spike as Same-Store Sales Jump

Listen: Here's What You Need To Know About ETFs Today (Hint: They're on Fire!)

Listen: Here's What You Need To Know About ETFs Today (Hint: They're on Fire!)

Bitcoin Today: Bears Rear Their Heads as Prices Continue Downward Spiral

Bitcoin Today: Bears Rear Their Heads as Prices Continue Downward Spiral

Cannabis Stocks Are Screaming Sells After Seeing This Deal: Doug Kass Insider

Cannabis Stocks Are Screaming Sells After Seeing This Deal: Doug Kass Insider

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?