Despite Controversy, Rogers Commodity TRAKRS Ready AT CME

November 05, 2005

But later, Refco swept the funds out of Refco LLC and into the unregulated Refco Capital Markets.  Rogers' group said it tried to get the funds transferred back, but Refco demanded the request in writing. By the time the fax got there, the assets were frozen.

Refco, of course, vehemently disagrees.  According to Refco, the Rogers funds "authorized the transfer of certain assets into their new accounts at Refco CM [Capital Markets] and did so with their eyes wide open."

The bankrupt futures company came out swinging in its filing, saying that the Rogers Funds are "acting deceitfully by making knowingly false allegations in this litigation and seek to be unjustly enriched by trying to deprive Refco CM's estate of substantial assets that properly should be available for the benefit of all Refco CM creditors."

It's impossible to know, right now, who's right and who's wrong.  It's a little hard to imagine the Rogers group specifically authorizing the transfer, since it's unclear what they stood to gain from having the funds wired to the unregulated outfit. And it's easy to see Refco trying to shore up its business with an influx of new capital. After all, this was a crisis of confidence - if Refco had weathered the initial stampede, there's a good chance the firm could have survived.

On the other hand, the relationship between the two groups was clearly quite intimate - and involved.  The fact that everything came to a head in a period of two months is unusual.

Still, this is a matter for the courts to decide, and it will play out in bankruptcy proceedings over the coming days and months.

Trading TRAKRS

All of which brings us to the TRAKRS, the new bundled futures product tied to the Rogers Raw Materials Index, which debut on the CME on Friday, November 4.

In many ways, none of the above should matter.  The TRAKRS are not in any way tied to the Rogers mutual funds, and the fact that the funds are frozen has no bearing on the Rogers' Raw Material Index - which remains one of the most interesting and diversified commodity indexes on the market today.

But much of the cache tied to the Rogers index was tied up in Jim Rogers himself - the large personality, the tremendous record of investing.  With the unfortunate situation at Refco, Rogers' name is - rightfully or not - tied up with negative associations.

Still, the TRAKRS do provide an interesting way to invest in commodities, and an improvement - in many ways - over the now seized mutual funds.  After all, one of the chief criticisms of the Rogers' mutual funds has always been that they were woefully expensive: They came with a $10,000 investment minimum with a six percent load, and an annual fee of 1.85 percent.

The TRAKRS do away with the investment minimum, and the load.

For those not familiar with the TRAKRS, they're a neat little product from the CME.  Essentially, they are index futures contracts - with a twist. That twist is that, unlike traditional index futures, people who purchase TRAKRS post all of the value of the TRAKR up-front; with most futures contracts, all that's required is a ten or twenty percent margin deposit.  Because the positions are not leveraged, the regulators make it easier for people to buy TRAKRS - the share may be held in a traditional brokerage accounts, rather than at futures-specific brokerages.  That means that people daunted by the idea of opening up a futures trading account can still access the TRAKRS.

The TRAKRS don't charge a load, but they do charge 1.95 percent per year to manage the contract.  Still, compared to a six percent load, the products may be a bargain. And with their interesting value proposition, the TRAKRS should find some traction with investors looking for a low-priced alternative to the expensive commodity index funds.


Investors still don't have the perfect way to access the commodities market.  The existing commodities mutual funds all feature high expenses, and the TRAKRS come with their own problems - like all futures contracts, they have a fixed expiration date, forcing investors to roll over the product to maintain exposure.  The holy grail is a commodities ETF that offers exchange-tradable exposure to a diversified commodities index at a reasonable cost.  There are a few groups working on the proposal, including iShares and Deutsche Bank proposals in registration at the SEC, but nothing is immediately pending.

In that environment, these new TRAKRS offer an interesting opportunity for some investors.  And despite the current negatives surrounding the Rogers name, they track an excellent index provided solid, diversified exposure to the commodities market.


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