10 of the Best Commodity ETFs
H ave you invested in metals, energy, or agricultural products? If so, then you’ve invested in a commodity. Commodities are raw materials such as copper, oil, and sugar, to name a few. Though a lesser-known option for investing, commodities are vital to the global economy and an excellent way to diversify and bring inflation hedging benefits to your portfolio. Occasionally, commodities can also serve as a profitable short-term trade. The average expense ratio for commodity ETFs is 0.75%, with 101 commodity ETFs currently being traded in U.S. markets.
While we’re not stockbrokers or advisors and don’t make recommendations, it’s always a great idea to know how to find and identify potential trades for yourself. In recent years, commodity-linked indexes and single commodities have become more widely available, introducing with them a new set of unfamiliar risk factors. Though direct exposure to commodities often involves opening a futures account, you can also use a brokerage account to buy and sell commodity ETFs just like stock. This article is designed to introduce you to some of the top ETF performers as evaluated by leaders in the investment industry in order to help you better understand if commodity exchange-traded funds should be in your portfolio.
Need an in-depth introduction to commodity trading? Check out these stock market basics.
- Commodities are raw materials that include energy, agriculture, and metals.
- Commodity ETFs bring inflation hedging benefits and diversification to your investments.
- 101 commodity ETFs are currently being traded in U.S. markets.
- High-performing commodity ETFs include CORN, SOYB, USL, UNL, GLD, SLV, PALL, DBB, DBC, and GSG.
10 of the Best Commodity ETFs
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Here are 10 of the best commodity ETFs to consider:
- Teucrium Corn Fund (CORN)
- Teucrium Soybean Fund (SOYB)
- United States 12 Month Oil Fund (USL)
- United States 12 Month Natural Gas Fund (UNL)
- SPDR Gold Trust (GLD)
- iShares Silver Trust (SLV)
- Aberdeen Standard Physical Palladium Shares (PALL)
- Invesco DB Base Metals Fund (DBB)
- Invesco DB Commodity Index Tracking Fund (DBC)
- iShares S&P GSCI Commodity-Indexed Trust (GSG)
Teucrium Corn Fund (CORN)
With so few methods of directly playing crop trends, the Teucrium Corn Fund is an ETF that provides a simple and secure way to invest in an agricultural commodity. In Spring 2020, the United States experienced its largest corn planting since 2012, an indication of huge demand for an already highly coveted commodity. Interested investors can skip opening a futures account and invest in futures contracts for corn with this easy-to-trade commodity ETF.
Teucrium Soybean Fund (SOYB)
Teucrium Soybean Fund is a sister fund to CORN, providing investors looking to avoid trading futures with direct access to the soybean market. A hot topic in recent trade negotiations, soybeans are one of the most often traded agricultural commodities. SOYB is designed to accommodate its commodity’s domestic growing season by tracking weightings over various time periods. A top ETF performer and an assets under management winner, SOYB’s principal contracts are exchanged on the Chicago Board of Trade.
United States 12 Month Oil Fund (USL)
USL is on the radar of all investors seeking an exchange-traded fund with direct access to one of the biggest energy commodities: oil. Assessed by interest and volume, crude oil futures are some of the highest liquid contracts. Unlike other major oil stocks such as Exxon Mobil Corp. (XOM), the Netherlands’ Royal Dutch Shell PLC (RDS.A), and France’s Total S.A. (TOT), buying USL is a direct investment in this commodity, with benchmarks to futures contracts expiring over each of the next 12 months. Despite being one of the lesser-popular oil stocks, the structure of USL has saved it from the unpredictability other oil funds have faced. It also has one of the top redemptions.
United States 12 Month Natural Gas Fund (UNL)
The United States 12 Month Natural Gas Fund is one of the easiest methods of taking advantage of natural gas trends in a commodity ETF. Also in the energy commodity vein, UNL is the liquid gas match to USL and assesses a year’s worth of futures contracts traded on the New York Mercantile Exchange in order to record natural gas prices. Keep in mind that, in spite of the boom U.S. natural gas production experienced in the last decade due to fracking, natural gas prices continue to be relatively unpredictable. However, the commodity does have a high potential for return and deserves consideration for your portfolio.
SPDR Gold Trust (GLD)
Gold and other precious metals have always given investors inflation hedging and a chance to play short-term price swings, but storing physical gold can be risky and expensive. Unlike directly investing in physical gold, trading via your brokerage account out of a commodity ETF is a relatively safe and easy option. GLD is currently one of the top creations in the global commodity market. Because SPDR Gold Trust’s holdings are measured against gold bullion, you sacrifice none of the profit by switching from physical gold to trading commodity ETFs. For investors that have dabbled in the gold market, this commodity-backed fund serves as a high potential portfolio addition.
iShares Silver Trust (SLV)
You don’t often hear about gold without silver, and commodity ETFs are no exception. The iShares Silver Trust shares a parallel structure with the SPDR Gold Trust, but the similarities stop there. While gold can be bought and sold for $1,700 per ounce, silver goes for under $20, making funds like this one the most reasonable ways to trade silver. In addition, silver’s use in commercial and industrial resources also contributes to its drastically different performance in the market. Silver is commonly used in batteries, medical instruments, RFID chips, water purification, medicine, solar panels, and nuclear reactors. It has a one-year trailing total return of 52.4% and a three-month average daily volume of 49,686,872. Its expense ratio is .50%.
Aberdeen Standard Physical Palladium Shares (PALL)
Palladium is coincidentally one of the biggest and most overlooked of the metal commodities. Benchmarked to palladium bullion, the Aberdeen Standard Physical Palladium Shares is a grantor trust and one of the very few paths investors can take to access the metal outside of futures contracts. Investors looking to buy large quantities of palladium should add PALL to their radar. Keep in mind that prices are heavily influenced by the global car industry and can experience sharp swings. Its one-year trailing total return is 48.2% with a three-month average daily volume of 46.083. Its expense ratio is .60%.
Invesco DB Base Metals Fund (DBB)
Investors interested in more commonly used metals likely have the Invesco DB Base Metals Fund on their radar. DBB is an exchange-traded fund with direct access to the base metals of aluminum, copper, and zinc. These metals have near-infinite applications in alloys and products such as pipes, inks, wires, cans, musical instruments, zippers, engines, cosmetics, and more. For this reason, they experience a lot of fluctuation influenced by industrial trends. Despite the year’s drop in global manufacturing, recovering demands may benefit DBB as we move into 2021.
Invesco DB Commodity Index Tracking Fund (DBC)
Investors seeking to play the raw material market without the price swings of specific commodities should check out the Invesco DB Commodity Index Tracking Fund (DBC). Made up of futures contracts on commodities including precious metals, agricultural products, and energy sources, DBC is a popular investment that provides your portfolio with exposure to 14 of the world’s most heavily traded commodities. DBC has nearly $800 million in assets under management.
iShares S&P GSCI Commodity-Indexed Trust (GSG)
Similar to Invesco’s DBD, iShares S&P GSCI Commodity-Indexed Trust is made up of various commodities from livestock to industrial metals. Due to the usual command of energy contracts over the commodity market, the majority of the fund is composed of liquid natural gas and crude oil. GSG is your one-stop investment for entering the global commodity market, with over $500 million in net assets.
If commodity ETFs don’t interest you but you’d still like to join the market, you can always invest in companies that produce commodities by buying individual stocks. This way, you get some exposure without directly buying the commodity.
Commodities are a huge aspect of our daily lives. By staying informed of the global commodity market, you better enable yourself to anticipate consumer spending and long-term price trends. You’ll then be able to invest for long-term appreciation, hedge positions like a manufacturing company, or conduct short-term trades for price swings.