Schroders has broken new ground with the launch of a new fund that will trade futures, equities and currencies, to meet growing demand for investments in the commodity sector, the British fund manager said.
Most other commodity funds invest passively in indices such as the Goldman Sachs Commodity Index or only in the shares of companies that are related to the sector.
The Schroder Alternative Solutions Commodity Fund will trade commodity futures, related stocks such as miners or oil firms and currencies such as the Australian dollar or the Norwegian crown, which are correlated with commodity and energy prices.
"The Schroders commodity fund will have the ability to invest in a far wider range of commodities and instruments," the company told Reuters this week. "This will increase the range of return opportunities available as well as reducing the volatility of the fund."
Commodity prices have boomed in recent years on demand from fast-growing economies such as China and India with gold, copper, aluminium and platinum all trading at or near record highs.
Analysts say demand from emerging economies is likely to rise further and boost commodity prices over the next few years, although they expect optimism to be tempered with occasional retracements.
"There is a strong case for investing in commodities ... rising demand (and) constrained supply," Schroders said.
"Historical data show that commodities have a low or even negative correlation to stocks and bonds."
Low correlation against stocks and bonds means the fund will help investors diversify portfolios and commodities are also seen as a better hedge against inflation than equities.
Analysts expect institutional investors to raise holdings of commodities at the expense of stocks but the amounts so far have been small, even though some consultants recommend an allocation of up to 5 percent.
The fund launched this month is registered in Luxembourg and so should appeal to investors who have shunned commodity hedge funds domiciled outside Europe in lightly regulated centres such as the Cayman Islands or the Bahamas. It will not invest directly in physical commodities - those that need to be stored and transported.