This list of commodity ETFs is an easy way to invest in raw materials.
The rate of inflation hit the highest level since 1990 this October, with prices jumping 6.2% over the prior year. The big drivers, unsurprisingly for those who have been out shopping or filling up the car lately, were food and fuel prices. There are serious implications for many asset classes when prices rise in this fashion, as consumers often have less money to spend and some businesses see their profit margins shrink materially. But perhaps the simplest and most direct way to invest with inflation in mind is to buy into raw materials, including key commodities such as oil, copper and soybeans. If you’re interested in that approach, here are eight exchange-traded funds that let you invest directly in commodities.
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (ticker: PDBC)
The largest commodity ETF out there as measured by assets under management, this nearly $7 billion fund is an actively managed ETF that does not follow a fixed index but rather focuses on around 15 heavily traded commodity futures contracts as well as “swaps” to gain exposure to key commodity markets including oil, natural gas, corn and copper, among others. Also, the “No K-1” in its name speaks to the fact that PDBC doesn’t offer the more burdensome K-1 tax form issued by partnerships that include commodity firms and even some commodity fund sponsors. The result is a simple and effective way to play commodities without the hassle of other strategies. PDBC’s expense ratio is 0.59%, or $59 for every $10,000 invested annually.
Invesco DB Commodity Index Tracking Fund (DBC)
Another popular Invesco commodity fund, the $3 billion DBC is similar in that it follows the most widely held commodities and gains exposure to these materials via futures contracts. But right now, the makeup of the portfolio is decidedly different than the prior fund in that the top four positions are much more heavily weighted toward fossil fuels, with gasoline and diesel futures comprising more than 24% of total holdings. Crude oil makes up about 24% of the fund’s holdings after that, making the fund a decidedly energy-focused investment. That said, energy prices have been soaring, so this fund is up more than 40% in 2021 to easily outperform the S&P 500. DBC’s expense ratio is 0.85%.
iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT)
This nearly $3 billion iShares fund is a more sophisticated offering that deploys a “dynamic-roll” strategy. While it is similar to the prior funds in that it offers access to commodities across energy, metals and agriculture, it minimizes the expenses and tax burdens that can come from commodity investing through a combination of futures, options and swaps trading. This is not particularly unique to COMT, but what the fund does offer is a more strategic approach to “rolling” short-term contracts into longer-term contracts. In other words, rather than just selling futures or options based on a day in the calendar, this fund seeks out the maximum profit opportunity when it rolls those positions forward. Thanks in part to this approach, COMT is sitting on an impressive gain of about 40% this year. COMT’s expense ratio is 0.48%.
First Trust Global Tactical Commodity Strategy Fund (FTGC)
This more than $2 billion First Trust fund is an actively managed ETF that seeks to provide investors with commodity exposure. But unlike the previously mentioned funds that tend to be very energy-focused right now, FTGC’s top holdings include gold, aluminum, copper and silver in that order. The downside of this difference is that performance hasn’t been quite as impressive as the prior commodity ETFs, but FTGC is still up roughly 30% this year — and if you think the run for energy is over and other commodities may be heating up, this could be an interesting way to put your money behind that idea. FTGC’s expense ratio is 0.95%.
KraneShares Global Carbon ETF (KRBN)
When it comes to commodity investing, most folks naturally think of energy or agricultural products first. But carbon trading is gaining traction as an investment strategy in the age of climate change. This dedicated KraneShares fund is large, commanding more than $1 billion in total assets, and provides broad coverage of cap-and-trade carbon allowances through carbon credit futures contracts. The idea of carbon markets is central to many climate change prevention plans, where carbon dioxide emissions have a tangible cost to incentivize green behavior. And with carbon prices soaring, KRBN has delivered a more than 80% gain for investors in 2021. KRBN’s expense ratio is 0.78%.
United States 12 Month Oil Fund (USL)
Of course, clean energy is all well and good, but the commodity complex on Wall Street remains dominated by trade in fossil fuels, with oil being the biggest market of them all. Just as unique market and environmental conditions have boosted carbon, it has been a heck of a year for oil prices, and the roughly $1 billion USL is up more than 65% this year as a result. Just beware that while crude oil futures are among the most liquid commodity contracts on the planet, volatility is very common in these markets. It’s also worth noting that USL doesn’t own actual oil but rather is benchmarked to futures contracts that expire in each of the next 12 consecutive months, so the day-to-day moves in the price of a barrel of crude may not translate to this fund at the same rate. USL has a 0.88% expense ratio.
SPDR Gold Shares (GLD)
Another massively popular physical commodity, gold is seen as a foundational store of value by some investors and a speculative, uncorrelated asset for those looking to play the short-term ups and downs in gold prices rather than just the stock market. GLD is among the most popular ways to play this precious metal, with $58 billion in assets at present. Part of its popularity comes from the fact that you don’t need a safe or insurance if you invest via this commodity ETF instead of physical bullion. Just know that so far in 2021, gold is actually down slightly compared with other commodities and the stock market. But as mentioned, the fact that this asset isn’t correlated to broader economic trends in the same way as stocks or other assets could be a big plus if the rest of Wall Street hits a snag. GLD’s expense ratio is 0.4%.
Teucrium Corn Fund (CORN)
Though it’s the smallest fund on this list with about $130 million in assets, CORN is one of the few ways for small-time investors to get direct exposure to agricultural commodity markets — and with food prices contributing big time to the broader uptrend in prices, that’s an important factor right now. Corn is not just food, however, as it is used throughout the global economy in ethanol fermentation, starch and sweetener production, and increasingly in plant-based plastics manufacturing by companies looking to build more sustainable operations. If you want a single commodity that represents economic activity across producers, consumers and merchants, corn is one of the few materials that fits the bill. This CORN fund is one of the simplest ways to tap into that potential — and with shares up more than 35% in 2021, this commodity ETF clearly has something to offer. CORN’s expense ratio is 1.95%.
Commodity ETFs to buy now:
— Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)
— Invesco DB Commodity Index Tracking Fund (DBC)
— iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT)
— First Trust Global Tactical Commodity Strategy Fund (FTGC)
— KraneShares Global Carbon ETF (KRBN)
— United States 12 Month Oil Fund (USL)
— SPDR Gold Shares (GLD)
— Teucrium Corn Fund (CORN)
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