Mutual funds invest in not just stocks and fixed income securities but they also invest in futures and options. They have a separate group of funds that focus in investing in derivative instruments, and these funds give an awesome investment tool for investors who want to diversify their portfolio with options and futures for a number of companies’ stocks and commodities.
Mutual funds that focus in generating returns from changes in the prices of commodities usually hold commodity futures and stocks of companies that take out and sell a number of commodities, like gold, gas, silver, oil and a variety of other precious metals. Futures have the potential to be a huge part of a mutual fund’s holdings if a fund wants to go after aggressive speculation and trading strategies that focus on maximizing return from the commodities market. Investing in commodities comes with high risks, and mutual funds usually utilize comprehensive investment methods and hire highly competent management. This could result in a high expense ratio charged by a commodities mutual fund.
For example, the Rydex Basic Commodities Fund Class H (NASDAQ: RYMBX) invests in a number of exchange-traded products, also including commodity-attached derivative instruments like commodity options and futures. The fund will charge a high gross expense ratio of 1.77 percent as recently as May of this year.
Other mutual funds invest in stocks but also will hold option positions because it helps minimize the downside risk and volatility of their portfolios. Such as, the Gateway Fund Class A Shares (NASDAQ: GATEX) invests in large-cap stocks that trade on the S&P 500 Index. Though, the fund sells call options against its portfolio and uses the profits to buy put options that allow GATEX to hedge its whole portfolio versus volatility and unexpected large declines in prices.