6/01/12: Van Eck's Kristen Capuano's recent article in Financial Planning discusses the return-reducing banes of commodity investing: contango and roll yield. She explains, however, that next generation commodity indices [like CMCI] and mutual funds seek to minimize the negative effects of contango with a rolling reinvestment approach that is less susceptible to performance drag. View article >>
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The Van Eck CM Commodity Index Fund seeks to track, before fees and expenses, the UBS Bloomberg Constant Maturity Commodity Index (the “CMCI”). CMCI is a next-generation commodity index diversified across maturities, minimizing its exposure to the front end of the futures curvesBy spreading its exposure across multiple maturities and maintaining a constant maturity per commodity, CMCI seeks to mitigate the impacts of negative roll yield in contango environmentsDiversified across five commodity sectors and 28 commodity components; energy allocation typically around 35%In contrast with many “enhanced” commodity funds, offers “pure” commodity exposure by investing in commodity-linked derivative instruments and more conservative fixed income securities, such as U.S. Treasury Bills
The Van Eck CM Commodity Index Fund seeks to track, before fees and expenses, the UBS Bloomberg Constant Maturity Commodity Index (the “CMCI”).
Michael F. Mazier, Portfolio Manager
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*Returns less than one year are not annualized.
The tables present past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees1, investment returns would have been reduced. Expenses: Class Y: Gross 1.30% and Net 0.70%. Expenses are capped contractually through 05/01/14 at 0.70% for Class Y. Investment returns and Fund share values will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV.
This graph illustrates a hypothetical $10,000 investment in the UBS Bloomberg CMCI Index. Returns reflect capital appreciation and the reinvestment of dividends and capital gains, if any, as well as all fees and expenses, but do not reflect any sales load. All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Results reflect past performance and do not guarantee future results.
The table presents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees, investment returns would have been reduced. Investment returns and Fund share values will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV.
This bar graph illustrates calendar year total returns and/or roll returns of CMCI vs. traditional indices. During the recent commodity market expansion, increased interest exposed the concept of “negative roll yield” or the amount of return lost by rolling a front-month futures contract to the next month while the shape of the commodity curve is in contango. Traditional commodity indices are currently experiencing significant negative roll yield, resulting in a persistent erosion of total return. Graph source: Van Eck Research, Pertrac, Bloomberg.
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All registered investment companies, including Van Eck Associates, are obliged to distribute portfolio gains to shareholders at year-end regardless of performance. Trading Van Eck Funds will also generate tax consequences and transaction expenses. The information provided is not intended to be tax advice. Tax consequences of dividend distributions may vary by individual taxpayer. There is no guarantee that dividends will be paid. To receive a distribution, you must have been a registered shareholder of the relevant Van Eck Funds on the record date. Distributions are paid to shareholders on the payment date. Past distributions are not indicative of future distributions.
As a more modern commodity benchmark, the UBS Bloomberg Constant Maturity Commodity Index ("CMCI") seeks to reduce roll losses in contango environments in order to achieve higher risk-adjusted returns. In addition to diversification provided by 28 commodity futures components from the energy, precious metals, industrial metals, agriculture and livestock sectors, the CMCI introduces a freely determinable time element.
CMCI achieves “constant maturity” via a continuous rolling process, which allows maximum exposure to the asset class, and helps to minimize exposure to the negative effects of roll yield.
With traditional indices, a continuing contango situation with futures confined to the steep part of the curve can lead to heavy roll losses (blue bar).
Using the CMCI constant maturity principle can significantly reduce roll losses (blue bar) in a typical contango environment.
Volatility is the annualized standard deviation of monthly returns.
Maximum drawdown is the largest negative change in fund value over a given period of time.
Correlation describes a complementary or parallel relationship between two investments. The correlation coefficient is a measure that determines the degree to which two variables’ movements are associated and will vary from -1.0 to 1.0. -1.0 indicates perfect negative correlation, and 1.0 indicates perfect positive correlation.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
The Van Eck CM Commodity Index Fund is a passively managed mutual fund that seeks to track, before fees and expenses, the performance of the UBS Bloomberg Constant Maturity Commodity Total Return Index (CMCI). Although passively managed, the Fund is overseen by Michael F. Mazier, a senior fixed income strategist with extensive expertise in global fixed income securities.
The UBS Bloomberg Constant Maturity Commodity Index ("CMCI") diversifies across 28 commodity components and up to five maturities. The CMCI chooses between maturities of five “constant maturities”: three-month and six-month and one-, two- and three-year maturities for certain commodities. This can be done either selectively for individual commodities to diversify over time, or collectively for all those included in the index to diversify both across commodities and over time. In periods of persistent contango, this allows the index to place its exposure at more favorable (i.e., less sloping) sections of the futures curve and keep it there. This can prevent slippage into the steeper part of the curve, or the portion of the curve typically associated with higher roll losses.
Roland Morris Commodity Strategist, Van Eck Global Hard Assets Investment Team
"Someone said that you want to own what the central banks can't print. And in my mind, that's gold and hard assets in general.
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Daniel Reiss Associate
Understand key investment concepts that impact Van Eck CM Commodity Index Fund (CMCAX)
Understand the "constant maturity" concept that is key to Van Eck CM Commodity Index Fund (CMCAX)
CONTANGO
"Contango" refers to an upward sloping term structure, in which indices that hold front-month contracts will incur a cost each time contracts expire and must be rolled to more expensive, longer-dated contracts. As contracts move closer to expiration, their value converges with spot prices. So, “contango cost” usually is measured by the difference between spot prices and front-month futures.
BACKWARDATION
"Backwardation" is the opposite of contango, and refers to a downward sloping term structure. Backwardation tends to occur in contracts and during periods when traders are concerned about scarcity of supplies. Thus, traders would rather have commodities in-hand now (spot) than in the future, and will pay for the privilege.
ROLL YIELD
"Roll Yield" refers to the positive or negative contribution caused by rolling an expiring contract.
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1A contingent deferred sales charge for Class A shares of 1.00% for one year applies to redemptions of qualified commissionable shares purchased at or above the $1 million breakpoint level.
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You may purchase shares of Van Eck Mutual Funds indirectly through a broker/agent or directly through the Funds’ transfer agent, DST. The prospectus includes more detailed information regarding how to buy, sell, exchange or transfer shares, including how to reduce sales charges and how to choose a class of shares, plus various services for your convenience. Please read the appropriate prospectus carefully before investing.
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Important Disclosure
Unless otherwise stated, portfolio facts and statistics are shown for Class A shares; other classes may have different characteristics.
†NAV: Unless you are eligible for a waiver, the public offering price you pay when you buy Class A shares of the Fund is the Net Asset Value (NAV) of the shares plus an initial sales charge. The initial sales charge varies depending upon the size of your purchase. No sales charge is imposed where Class A shares are issued to you pursuant to the automatic investment of income dividends or capital gains distribution. It is the responsibility of the financial intermediary to ensure that the investor obtains the proper “breakpoint” discount. Class I and Class Y do not have an initial sales charge. See the prospectus for more information.
1Expenses are calculated for the 12-month period ending 05/01/14: Class A: Gross 1.39% and Net 0.95%; Class I: Gross 1.01% and Net 0.65%; Class Y: Gross 1.30% and Net 0.70%. Expenses are capped contractually through 05/01/14 at 0.95% for Class A; 0.65% for Class I; and 0.70% for Class Y. Caps exclude certain expenses, such as interest.
2The Dow Jones-UBS Commodity Index (DJUBS) is composed of futures contracts on 20 physical commodities covering seven sectors, specifically energy, petroleum, precious metals, industrial metals, grains, livestock and softs. Energy exposure is limited to no more than 33%; the manager cannot invest above that level no matter how favorable the energy market. The S&P® 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sectors. The S&P® Goldman Sachs Commodity Total Return Index (SPGSCITR) is a composite index of commodity sector returns, representing an unleveraged, long-only investment in commodity futures. The Barclays Capital Global Aggregate Bond Index is composed of the mortgage-backed and asset-backed securities and government/credit bonds. All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
UBS and Bloomberg own or exclusively license, solely or jointly as agreed between them, all proprietary rights with respect to the Index. In no way do UBS or Bloomberg sponsor or endorse, nor are they otherwise involved in the issuance and offering of the Fund, nor do either of them make any representation or warranty, express or implied, to the holders of the Fund or any member of the public regarding the advisability of investing in the Fund or commodities generally or in futures particularly, or as to results to be obtained from the use of the Index or from the Fund.
The views and opinions expressed are those of Van Eck Global. Fund manager commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. Any discussion of specific securities mentioned in the commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary.
You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. Commodities are assets that have tangible properties, such as oil, metals, and agriculture. Commodities and commodity-linked derivatives may be affected by overall market movements and other factors that affect the value of a particular industry or commodity, such as weather, disease, embargoes or political or regulatory developments. The value of a commodity-linked derivative is generally based on price movements of a commodity, a commodity futures contract, a commodity index or other economic variables based on the commodity markets. Derivatives use leverage, which may exaggerate a loss. The Fund is subject to the risks associated with its investments in commodity-linked derivatives, risks of investing in wholly owned subsidiary, risk of tracking error, risks of aggressive investment techniques, leverage risk, derivatives risks, counterparty risks, non-diversification risk, credit risk, concentration risk and market risk. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation risk, liquidity risk, interest-rate risk, market risk, credit risk, valuation risk and tax risk. Gains and losses from speculative positions in derivatives may be much greater than the derivative’s cost. At any time, the risk of loss of any individual security held by the Fund could be significantly higher than 50% of the security’s value. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities. For a description of these and other risk considerations, please refer to the Fund’s prospectus, which should be read carefully before you invest. Again, the Fund offers investors exposure to the broad commodity markets, currently, by investing in commodity-linked swaps.
Investing involves risk, including possible loss of principal. An investor should consider investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus and summary prospectus contain this and other information. Please read them carefully before investing.
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