Franklin Templeton Investments has launched a commodities fund to be managed by Pelagos Capital Management, an alternative investments specialist acquired by Franklin Resources in 2013.
The Franklin Pelagos Commodities Strategy Fund is a liquid commodities fund available to US investors.
The fund seeks long-term total returns by investing in the commodities market through commodity-linked derivative instruments. The fund seeks to diversify investor portfolios through an alternative asset class that has historically offered low correlations to traditional asset classes, such as stocks and bonds.
"We're pleased to now offer our strategy through a mutual fund to US investors. While commodities have traded for centuries, the costs and logistical challenges of direct investment in physical commodities can be daunting," says John Pickart, co-lead portfolio manager and co-founder of Pelagos Capital Management. "We believe this fund, which provides daily liquidity, offers a convenient way for investors to access this market and the potential to bring added diversification, inflation protection and global growth to their portfolios."
The fund's managers use an active, flexible approach to uncover opportunities within areas of the commodities market, including the energy, industrials, precious metals and agriculture sub-sectors, in relation to the Dow Jones-UBS Commodity Index, the fund's benchmark. The fund's managers will make active portfolio construction decisions regarding sector allocations, individual commodities, spot versus future price judgements and seasonal issues. To help manage volatility and satisfy asset coverage requirements for derivative positions, the fund also invests in securities of the US government, its agencies and other fixed income securities.
"Commodities exposure can serve as an important inflation hedge for investors looking to offset increasing commodity prices in their day-to-day lives," Pickart says. "We believe that commodities prices — whether for oil, corn or other staples — have the potential to trend higher, prompted by macroeconomic factors including global population increases, economic expansion and urbanisation trends."
Stephen Burke, co-lead portfolio manager and co-founder of Pelagos Capital Management, says: "While the potential benefits of investing in commodities are clear, investing in the market itself can be quite complex. For example, the energy, industrials, precious metals and agriculture markets are driven by a wide variety of factors, so their performance has tended to diverge significantly. A host of dynamics can present short-term opportunities with long-term impact, including seasonal trends, supply and demand dynamics, inconsistencies in exchange prices, and differences between spot versus future prices."