Principal Guaranteed Commodity Fund

Discussion in 'Trading' started by kristy, Jun 24, 2003.

  1. kristy


    I received this in an e-mail..... thoughts?


    I wanted to do a quick survey to find out general interest in a Mutual Fund idea. This is not a request to find out if you would directly participate in an upcoming offer we are going to have. This is more to get an idea of the market out there. The idea is to have a principal guaranteed commodity fund in which the minimum investment time frame is 10 years. If one were to hold for the 10 years- you would be guaranteed to get 100% of you principal back- backed by the US government. In the meantime- you get 100% of the profits or losses in the account during those 10 years. The management fee would be 1.5% and the fund would be no-load. The fund would trade like a stock as a Closed-End Mutual fund in which share prices fluctuate daily and the shares would be traded through a broker.
  2. Ebo


  3. kristy


    Actually- it's not SPAM-

    I know the guys doing it..... not well- just acquaintance wise. I have heard of guaranteed index funds before, any do those? I know Merrill offers one.
  4. Htrader

    Htrader Guest

    These guarantee index funds are just the newest wall street trick to try and get your money. Basically, they take part of your initial invesment and stick in treasuries. They put just enough so that x years down the line, that money will grow into your inital monetary investment. Then they take the rest of the money and trade with it. Any person can easily replicate the same results themselves by putting part of their portfolio in treasuries and investing the rest. Plus these funds usually have higher than average management fees.

    Don't be fooled and think that this is a risk free investment. When you take into account fees and inflation, you could be signifcantly down on your original investment.

  5. Actually they use Principal Only (PO) Treasury Strips. Treasuries themselves would cost too much (even on max margin) and leave too little left over to trade with.

    Or the prime broker takes the other side your created liability. Which again, has it's associated cost.

    But I agree that there's no free lunch, which I think was your point.

    Dr. Zhivodka
  6. jessie


    This is an old idea, lots of folks already do it, and it seems to surface more visibly whenever there has been a rough time in equities, and people are especially concerned about loss of principal. Guaranteed-principal-return funds and U.I.T.'s were all the rage after the "crash" back in '88, when I was a stockbroker. The first ones just took 50% of capital and bought zeros, then invested the rest. They are a bit more sohisticated now (not much) but it's the same idea, and there are already a number of commodity funds doing it as well as funds on the equity side. The comments about this not being entirely risk-free are correct. Worst case, you should get your principal back, but lose the use for a period of years, costing (at a minimum) inflation & lost opportunity & risk-free rate of return.
  7. No different than the banks giving you a free TV for your deposit. Problem is, the CD rate they give you is over a point below market, so you wind up paying $1000+ in lost interest for the $400 TV.
  8. 100% over 10 years is about 7% compounded annually, just estimating here, so it looks like they are betting big on recovery. lol.
    There is no way they can guarantee 100% under current rates.
    Us Bonds would have to trade at 80 to earn more than 7.8% and leave something to trade.
    I think they will just rip you off on management fees ( hidden in fine print somewhere ) and hoping that you will withdraw prematurely so the guaranteed 100% is off the table. It will be all your fault then, of course, they will say.
  9. jessie


    They aren't talking about guaranteeing 100% return on your investment, just a return of 100% of your principal, so your rate of return could be zero and they would have lived up to their agreement. Actually, this can be easily done, and is currently being done fairly commonly in both equities and commodities, but it's costly. It's just necessary to put whatever % in 10 year maturity zero coupon bonds that will return your principal at that time. When you do that, you may find that you are trading with 25% or less of the invested capital, and putting 75% in zeros, but the principal will be intact in 10 years. So, your return on trading is reduced quite a bit, as you are trading with much less leverage. Another problem is that zeros fluctuate quite a bit, and so in the interim, you may have even wilder swings in equity than in either vehicle alone. It's like any bond, hold it to maturity and the principal is returned, but in the meantime, all bets are off.
  10. Variable annuities have been doing it for years. They just charge MUCH higher fees overall which eat into any future profit.
    #10     Jun 25, 2003