The Rogers Index: how to best invest in commodities


Since its inception in August 1998 the Rogers Index of 35 commodities is up by more than 200%, and delivered an annualized compound return of 18.8% up to the end of March 2005. This is the best performing index of any of the major global capital market indexes, nothing has done better.

Yet the Diapason Rogers Commodity Index Fund remains an inexpensive investment option with a flat 1% annual management fee and $100,000 minimum investment.

Its manager is the Wall Street legend Jim Rogers who founded and managed the Quantum Fund with Georges Soros in his younger years before retiring at the age of 38. The commodities fund was originally born in 1998 when he was going off on a trip around the world and wanted to leave his funds safely invested while he traveled.

Mr. Rogers was also one of the first investors to realize that a 20 year bear market in commodities was over and that a bull market was about to begin, albeit his timing was out by a few months at the beginning.

Many more analysts are now starting to share this view, and Mr. Rogers reckons the bull market for commodities has another 13 to 20 years to run. So there is still plenty of time for investors to jump aboard this particular bandwagon.

His investment arm Diapason Commodities Management was built to create and manage products around the Rogers Index, and has attracted more than $1 billion since the beginning of 2005 from Europe, Asia and the Middle East, visit www.diapason-cm.com for more details.

In presentations to investors Mr. Rogers highlights the following reasons for believing that commodities will continue to soar in value (he thinks oil of more than $150 a barrel is just a matter of time!):

• US Federal Reserve Board & Central Banking Policies: Very favorable conditions for rising commodity prices are provided by the loose monetary policies of various central banks.

Excessive monetary stimulus, rapid credit expansion and negative real rates always eventually lead hard assets, such as real estate, commodities, and precious metals prices, to rise as more and more money chases a limited amount of commodities.

Central banks can create money out of thin air but it can take many years to increase global copper, zinc or silver production. Commodity production elasticity is low. Meanwhile, the combined broad money supply of the top 35 nations has risen by around 50%, since April 2001.

• Recession/Recovery: Commodity prices can rise even in recessions. During the 1970s, when US inflation was around 9 percent a year, the economy was in a major recession - yet commodity prices kept on rising.

As the global economy expands, demand for commodities will correspondingly rise, and with it commodity prices. An economic recovery generally demands a higher usage of commodities, resulting in higher commodity prices. Another point worth noting is that commodity prices increase significantly in periods immediately after the end of a recession.

• Global Energy Situation: A very positive factor for all commodities is the world's energy situation. Higher energy prices, such as for oil, are going to create a situation similar to the energy crises of the 1970s.

The overall gloomy supply/demand picture for energy resources points towards much higher oil and gas prices in the near future, translating to much higher commodity prices in general.

It is to be noted that many of the other commodities, such as soft agricultural commodities, are either derived from, or produced with oil and gas products.

• Maturing, disturbing geopolitical trends resulting in unstable markets and potentially adverse commodity distribution (e.g. Iraq, Saudi Arabia, Iran, Nigeria, Venezuela) are going to cause commodity prices to rise.

Additionally, various scholars have found historical similarities between the United States as an empire and the Roman Empire in decline.

The disintegration of the Roman Empire was characterized by on-going skirmishes and wars at the fringes of its lands, accompanied by rising inflation and a depreciating currency. With the United States appearing to fall into the empire mould, the likelihood of rising inflation and a depreciating currency increases.

• Rising government budget deficits worldwide (at both federal and state levels) will add significant pressure to depreciating paper currencies, in turn providing another factor for rising commodity prices.

The US budget deficit alone is bound to reach 7.2% of GDP in 2008. Thus, a new era of rising commodity prices is upon us.