Finally, A Commodities Play For The Little Guy

Oppenheimer's innovative vehicle relies on a futures index

The fear of inflation has pounded stocks and bonds mercilessly over the past few weeks. That's why OppenheimerFunds Inc. hopes to hit a gusher. On Mar. 31, it launched Oppenheimer Real Asset Fund, a new breed of mutual fund that resembles a bond fund but behaves as though it's a basket of commodities--and thus should be a stellar performer if inflation really does show up.

The fund's aim is to deliver a return that reflects the change in the Goldman Sachs Commodities Index (GSCI). That's an index composed of the futures prices of 22 different commodities from hogs to oil in rough proportion to the value of their production in the world economy. Energy futures make up 55% of the index, agricultural, 25%.

Even without a track record, the fund is generating a positive buzz among mutual-fund mavens. "It's an interesting product that many financial advisors have been searching for," says Lou Stanasolovich of Legend Financial Advisors Inc. in Pittsburgh. "There are times when financial assets are out of favor and real assets are in favor," says Don Phillips, president of Morningstar Inc. "Mutual funds need to address that."

GOOD TIMING. What's novel here is that Oppenheimer plans to earn the return by investing in "structured notes"--customized short-term securities whose prices are linked to the GSCI or to various commodities that are in the index. Only one-third goes into the notes, yet the price of the shares should behave as though the entire fund were invested in the index; the notes are structured so that every 1% move up (or down) in the index translates into a 3% change in the value of the note.

The remainder goes into short-term government securities, the income from which pays fund expenses and supplements returns. The fund also plans to use futures or options in small doses for portfolio management, not for large speculative bets on silver, corn, or hogs.

The timing of the fund's launch could not be better. But it's purely accidental. The fund had been in the works for 2 1/2 years, says Russell Read, the fund's architect and lead portfolio manager. Most of that time was spent shepherding this unique fund through both securities and commodities regulators.

It's not the first mutual fund to attempt a pure play on commodities. But the others rely on equities. "Historically, gold- and copper-mining stocks have tracked the commodities," says Read. But most other commodity stocks do not. "Exxon tracks stocks, not oil."

High net-worth investors have long invested in commodities futures funds. But those vehicles often require $50,000 to $100,000 minimums and annual fees can add up to 3% to 4% of assets plus 20% of the profits. The Oppenheimer fund, on the other hand, has a $1,000 minimum and the fees of load mutual funds. Class A shares carry a 5.75% sales charge and 1.75% in expected annual expenses. Other classes forego the load but charge 2.5% in expenses.

Sol Waksman, whose Barclays Trading Group Ltd. tracks futures funds, applauds Oppenheimer's "innovative approach." But he says the fund is no substitute for traditional futures funds that use leverage and speculate on price movements. The Oppenheimer fund "is just an index fund," says Waksman. Perhaps so. But for mutual-fund investors, any fund that gives them some shelter from inflation may be just fine.

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