Commodity indexes remain popular with large investors looking to balance stock and bond holdings, even after oil and metals markets dropped along with equities during this summer's credit market turmoil.

The historical lack of correlation between commodities and other financial assets has helped commodity index managers find new business, even as some funds were selling commodities to raise cash at the height of the market tremors.

The investors we have been working with tend to have a very long-term view and are looking at commodities markets as a way of diversifying their portfolio, said Daniel Raab, managing director of AIG Financial Products Corp, which runs the Dow-Jones AIG Commodity Index.

They tend to not get involved in commodities in a very leveraged way or in a short-term way, Raab said.

After surging 50 percent over six months, copper prices in London and New York lost 10 percent in just over three weeks since the start of August as credit woes in financial markets dampened appetite for risk everywhere, including commodities.

U.S. crude oil, which hit a record of $78.77 a barrel on Aug 1, also is down by about 10 percent.

But managers of commodity indexes -- those portals where mutual funds, pensions, endowments and wealthy individuals park billions of dollars with the hope of seeing higher raw material prices in future -- said their clients were not fleeing.

Commodity indexes were off this year's highs after the volatility of the last few weeks. But Raab, speaking for the DJ-AIG, said: We haven't seen any widespread spillover effect as of this point. And we continue to speak with investors about long-term allocations to the commodities markets.


As of Thursday's close, DJ-AIG's Total Returns Index -- which includes the cost investors incur when they swap expiring front month contracts on a commodity for new futures -- was up about 1 percent from its 2006 settlement.

At its peak on June 18, the index was up about 8 percent.

Raab said his clients were more concerned with the long-term behavior of commodities as an asset class.

They are really looking at it as a permanent part of their portfolio. They are accustomed to seeing several percentage point gains or losses in any month and they don't tend to rapidly adjust their positions over the short term.

He said some of the recent jitters in commodity markets were caused by speculators who had borrowed heavily to invest in various assets and had to sell their holdings in, say, gold to cover losses in equities.

Gary Gorton, a leading researcher on commodities at the University of Pennsylvania and a consultant to AIG Financial, agreed: If you look at the stock market indexes, you'll see that financial stocks have done very poorly and dragged down everything else.

I don't think we've seen or heard from any institutional investors that they're liquidating positions in commodities futures because of their need for liquidity, Gorton said. It's almost like a different clientele in a way.

Also, investing passively in commodity indexes that track daily movements of energy, metals, agricultural and soft futures was different from putting money in active long/short commodity strategies that investors knew little about, veterans in the trade said.

With a commodity index, you get full transparency, unlike a hedge fund, where you may get a real shock at the end of the month, said Tom Price, president at Beeland Management Co., which runs the Rogers International Commodity Index.

Like other commodity indexes, the Rogers Index was also not seeing a slowdown in demand after the recent selloff in commodities, Price said. The RICI is up about 5 percent for the year since December, off a 12 percent gain in early August.

In fact, most of the institutions are looking at the recent liquidation as an opportunity to buy, Price said. They were looking at these markets when these markets were making their highs and, at least, this selloff gave them the opportunity.