Commodities Are Fun to Eat and Use - Now How Do I Gain Exposure For My Portfolio?

EFF/KRF: Many companies have long positions in commodities and gain when commodity prices rise. Energy companies, for example, have reserves of oil, gas, and coal, and profit when energy prices rise. Other companies, such as airlines, buy commodities and suffer when prices rise.

Conceptually, investors can manage their exposure to commodity prices by increasing or reducing their ownership of firms that are positively or negatively exposed to commodity prices. This is probably not, however, an efficient way to manage commodity exposure. Few firms' fortunes are driven solely or even predominantly by commodity prices. Oil refiners and airlines, for example, are both affected by labor costs, regulations, taxes, economic conditions, and many other factors. An investor who adjusts his exposure to oil by increasing his allocation to either oil refiners or airlines also changes his exposure to all these other factors.