Best Commodity ETFs for 2024
As an investor researches the different types of investment products and asset classes, they might eventually come across the notion of commodities. Commodities are not as commonly included in investors' portfolios as stocks and bonds are. However, as with any asset class, investors will do well to know of their existence and to consider whether commodities may or may not be a useful addition to their portfolio.
This article will cover what commodity ETFs are and the advantages and disadvantages of investing in them. A commodity ETF list is also provided, which should serve as a starting point for investors looking for a starting point to expand their knowledge regarding this particular asset class.
Table of Contents
Key Takeaways
- A commodity ETF is a type of Exchange-Traded Fund that invests in a certain type of raw material, like gold or oil.
- There are different types of commodity ETFs. Some are physically backed by the raw material they invest in, some invest in futures contracts and some invest in commodity-related stocks like oil drilling companies.
- Investing in commodities can hedge a portfolio against inflation and market downturns but are also very volatile.
- Investing in a commodity ETF, however, means investing in a certain type of raw material, which doesn’t innately generate profit like a company might.
What are Commodity ETFs?
To understand what commodity ETFs are, we need to understand the word commodity and ETF separately.
What is a commodity?
The term ‘commodity’ comes from the field of economics, and it covers physical goods that can be bought and sold and that any quantity of them is interchangeable with other goods of the same type. Think, for example, of gold: a gram of pure gold can safely be exchanged for another gram of gold.
There are different types of commodities. ‘Hard’ commodities include copper, gold, or platinum and energy products like oil or gas. ‘Soft’ commodities are often agricultural goods like corn or cacao.
What is an ETF?
The second term that bears explaining is that of the Exchange-Traded Fund (ETF). An Exchange-Traded Fund, from a portfolio’s point of view, can be treated like a single stock. It is traded on an exchange for a single price and can be bought or sold by the investor in a single transaction. The fund, meanwhile, can contain many things, like different types of stocks or, in the case of this article, commodities. One commodity ETF might focus on one specific commodity (gold is a common one), while another might hold a combination of types of precious metals.
An important difference when it comes to commodities ETFs is whether they are physically backed or futures-based. A physically-backed ETF refers to an ETF that directly holds the assets it invests in. When an investor buys a physically backed gold ETF, the fund manager goes ahead and buys a corresponding amount of gold on the spot market, which is added to the fund’s holdings and stored in a secure vault.
A futures-based ETF only invests in the underlying asset by buying futures contracts. A futures contract is an agreement between a buyer and seller to exchange a specific amount of a certain good for an agreed-upon price at a specific point in the future. Futures contracts have an entire capital market of their own.
Best Commodity ETFs to Watch
What is ‘best’ is heavily dependent on an investor’s personal goals and financial situation, and there are no objective answers. The following commodity ETF list should therefore serve as a starting point for research for any investor interested in this asset class. Investors should perform their own research to determine what investment products are right for them.
- iShares S&P GSCI Commodity Indexed Trust ETF – Futures-Based ETF Investing in Many Different Commodities, Mainly Energy
- L&G All Commodities ETF – Broad ETF Tracking Different Types of Commodities
- PowerShares Optimum Yield Diversified Commodity Strategy No K-1 Portfolio ETF – Actively-Managed Fund That Trades in 14 Heavily-Traded Commodities
- SPDR Gold Shares ETF – A Physically-Backed Gold ETF
- iShares Oil & Gas Exploration & Production ETF – Tracks Over 70 Companies Involved in the Production of Oil and Natural Gas
iShares S&P GSCI Commodity Indexed Trust ETF – Futures-Based ETF Investing in Many Commodities, Mainly Energy
This fund tracks a range of different commodities, though it does so only by investing in futures contracts. The fund holds futures contracts covering oil and gas, precious metals, agricultural products, and livestock, among other things.
By far the largest sector is represented by energy, at 57%. Agriculture represents roughly 18% of the fund’s holdings, and Industrial Metals represent roughly 10%. The fund trades under the ticker symbol ‘GSG’ on the New York Stock Exchange. With Admirals, you can trade the iShares S&P GSCI Commodity Indexed Trust ETF CFD (contracts for difference). This is a derivative contract of the underlying market which enables you to trade long and short.
L&G All Commodities ETF – Broad ETF Tracking Different Types of Commodities
The L&G All Commodities ETF aims to track the performance of the Bloomberg Commodity Index, which is a broad index that contains a variety of commodities, from precious metals to agriculture, livestock, and energy.
The top 10 holdings in this ETF by the size of capital allocation are gold, WTI crude oil, Brent crude oil, natural gas, copper, soybeans, silver, corn, aluminium, and live cattle. Gold accounts for roughly 16% of the fund’s capital, and live cattle for roughly 4%.
This ETF covers several sectors. Roughly 30% of the fund’s capital is allocated to Agricultural commodities. The rest is divided across Energy (~28%), Precious Metals (~21%), Industrial Metals (~15%), and Livestock (~5.7%). The fund trades under the ticker symbol ‘BCOM’ on the London Stock Exchange.
PowerShares Optimum Yield Diversified Commodity Strategy No K-1 Portfolio ETF – Actively-Managed Fund That Trades in 14 Heavily-Traded Commodities
This ETF is an actively managed fund that seeks to generate a profit for its investors by buying and selling a number of different commodities. The fund contains more than $5 billion in assets and is collateralized by more than 50% of US Treasury Bills.
The top ten commodities this fund holds are Petrol, WTI Crude Oil, Brent Crude, NY Harbor ULSD, Gold, Sugar, Soybeans, Copper, Corn, and Wheat. Petrol accounts for roughly 12.7% of the fund’s capital, and Wheat accounts for roughly 4.6%. The rest of the fund’s capital is spread in smaller amounts over a number of different commodities. The fund trades under the ticker symbol ‘PDBC’ on the NASDAQ stock exchange. With Admirals, you can trade the PowerShares Optimum Yield Diversified Commodity Strategy No K-1 Portfolio ETF CFD. This is a derivative contract of the underlying market which enables you to trade long and short.
SPDR Gold Shares ETF – A Physically Backed Gold ETF
The SPDR Gold Shares ETF is purely meant for investors looking to buy into gold, as 99% of its capital allocation is in physical gold. The goal of this ETF is to lower barriers to entry such as access, custody, and transaction costs for investors wishing to invest in gold. The fund is physically backed by gold and contains more than 887 metric tons of the precious metal, valued at just over $54 billion. This makes it the largest gold ETF worldwide.
The fund trades under the ticker symbol ‘GLD’ on the New York Stock Exchange, as well as the stock exchanges of Singapore, Tokyo, Hong Kong, and Mexico. With Admirals, you can trade the SPDR Gold Shares ETF CFD. This is a derivative contract of the underlying market which enables you to trade long and short.
iShares Oil & Gas Exploration & Production ETF – Tracks Over 70 Companies Involved in the Production of Oil and Natural Gas
The iShares Oil & Gas Exploration & Production ETF comprises more than 70 equities of companies that are active in the oil and gas industries. Nearly all of this fund’s capital is in stocks, which might make its appearance on this list of commodity ETFs surprising. The simple explanation for this is that all the companies in this ETF are active somewhere in the production chain of oil and natural gas.
The top 10 holdings of this ETF by capital allocation are EOG Resources, ConocoPhillips, Canadian Natural Resources, Pioneer Natural Resource, Woodside Energy Group, Hess Corp, Devon Energy Corp, Diamondback Energy, USD cash, and Coterra Energy. EOG Resources accounts for roughly 10% of the fund’s capital, and Coterra Energy accounts for roughly 3%. Around 3.5% of the fund’s capital is currently held in US dollars and over 95% of the fund’s capital is allocated to the Energy sector. The fund trades under the ticker symbol ‘IOGP’ on the London Stock Exchange.
How to Invest in Commodity ETFs
With Admirals, you can invest in global stocks and ETFs with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission
- Germany and France stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission
You can learn more about investing commissions on the Admirals Contract Specification page. You can search for global stocks and ETFs from the Invest.MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Investing in Commodity ETFs: Pros & Cons
Having covered the commodity ETF list, investors might be curious to know why exactly they might choose to invest in commodity ETFs. As with any type of investment product, there are advantages and disadvantages. Generally, there are two main reasons why some investors include commodity ETFs in their portfolios.
The first reason is that some commodities can serve as a hedge against inflation. Gold is the prime example of this and is considered by many investors as their safe haven in times when inflation is high. The value of gold doesn’t inflate rapidly, as gold as a material is quite scarce, and only a relatively small amount is mined each year. Gold also has a long history, and the value proposition of gold is culturally ingrained across many societies. Other precious metals, such as silver and platinum, are also seen as inflation hedges by some, albeit to a lesser extent.
The second reason some investors decide to include commodity ETFs in their portfolio is to speculate on the price of certain commodities. When the economy is growing rapidly, for example, the price of oil and gas tends to trend upwards because these goods are used as inputs in nearly every production process. The investor who expects a period of economic growth to commence might thus choose to buy into an energy commodity ETF, as they expect the price of these goods to rise in the near future.
Investing in commodities also comes with certain disadvantages. By definition, buying a commodity means buying a certain amount of physical goods. These goods do not produce or add value as a company does, and they do not generate a profit innately. A barrel of oil is ‘just a barrel of oil’. All the investors can do to make a return on their money is sell the barrel for a higher price than they paid for it. There is no guarantee the price of oil will trend higher, however.
Another disadvantage is that the prices of some commodities fluctuate heavily based on certain economic factors. In times of economic weakness, the price of energy such as oil and gas can decrease sharply - double-digit percentages in just a few weeks. That kind of volatility is not for everyone and is something that any investor looking to buy into commodity ETFs should consider.
Continue Reading:
- How to Trade Commodities Guide
- 10 of the Most Traded Commodities in the World
- How to Create Commodity Trading Strategies
- What Are ETFs? ETFs Explained
- How to Trade ETFs with €1000
- The CFD Trading Guide
FAQs on Best Commodity ETFs
What is the largest commodities ETF?
The SPDR Gold Trust GLD ETF is the largest commodities ETF. The fund holds around $55 billion in assets backed by physical gold.
Are commodities ETFs a good investment?
Whether an investment product makes for a good investment comes down to each investor’s personal financial situation and goals. Some investors view commodity ETFs as worthwhile investments because they allow a portfolio to diversify its holdings away from only stocks and bonds. However, some believe they are far too volatile and risky to add to a portfolio. As always, it is a good idea to know what you’re buying into and to perform adequate research.
What is the largest diversified commodity ETF?
There is no objective answer to the question of which diversified commodity ETF is the largest, since all commodity ETFs differ in the matter of diversification. It could be argued that the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF is an answer to this question, since it is the largest commodity ETF that invests in more than one single commodity. All commodity ETFs that are larger invest in either silver or gold only.
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