Commodity funds can be used to diversify a portfolio, but watch out for highly specialized funds, warns Emiko Kurotsu for Morningstar. Agriculture funds, in particular, are popular nowadays for several reasons, Kurotsu says, namely, demand for foodstuffs and biofuel inputs outpacing supply. The narrow focus of these funds, however, makes them more volatile than funds that track better-diversified commodities indexes. She recommends investors who are dead set on increasing their commodity exposure look for funds that invest in a broad set of commodities and track a broad index.
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