Invest in these commodity ETFs for some inflation protection.
Inflation continues to run blistering hot. June’s consumer price index report from the U.S. Labor Department came in at an 8.6% year-over-year increase for May, well above market consensus. In response, equities and fixed-income assets tanked in unison as the Federal Reserve moved to increase interest rates by 75 basis points. Markets continue to remain volatile, with weakness in major indexes as traders take a risk-off approach. Despite this, the commodities sector has continued to perform strongly on the back of rising prices and supply chain issues. Investors looking for inflation protection and low correlation to equities and bonds for diversification can buy physically backed or futures-based commodity exchange-traded funds, or ETFs, that track the price of goods like precious metals, livestock, oil, natural gas and grains. Here are eight of the best commodity ETFs to buy today.
United States Oil Fund (ticker: USO)
The king of commodities is still oil. Although sustainable sources of energy are increasingly gaining prominence, petroleum-based products continue to account for a significant portion of our consumption. Recently, oil prices have skyrocketed, with many Americans acutely feeling the pain at the pump as prices push toward $7 a gallon in some areas. A way to gain exposure to rising oil prices is via USO, which tracks the performance of near-month West Texas Intermediate crude oil futures contracts. As a futures-based fund, USO poses many risks, including high volatility and tracking error from the spot oil price. This makes it best suited for advanced traders. USO also has a high expense ratio of 0.81%.
SPDR Gold Shares (GLD)
Gold remains the flight-to-safety asset when all else fails. When stocks and bonds fall in unison and currency becomes devalued, nothing beats the value preservation of physical gold bullion. During times of economic stress and global sociopolitical instability, the price of gold often increases. While investors can buy gold bullion, expenses for storage and insurance, as well as bid-ask spreads, can eat into returns. An alternative that can be implemented easily in retirement accounts is using a physically backed gold ETF like GLD. GLD holds deposits of physical bullion in secure vaults, with each share of GLD representing a claim to a fraction. The ETF has strong liquidity, high assets under management, or AUM, and a robust options chain for traders. Buying GLD costs an expense ratio of 0.4%.
iShares Silver Trust (SLV)
Silver is another precious metal with not only value-preserving properties, but also widespread industrial uses worldwide. Its high thermal and electrical conductivity make it a sought-after component in semiconductor and electronic manufacturing, and its luster makes it a common component in jewelry. Like gold, silver also has high volatility and lower correlations with stocks and bonds, making it a potentially good diversifier for portfolios. As with gold, investors looking to gain silver exposure can also do so with ETFs, with SLV being a great option. SLV tracks a deposit of physical silver held in secure vaults, totaling over $11 billion in AUM, and comprising around 17,000 metric tons. Buying SLV will cost an expense ratio of 0.5%.
Teucrium Wheat Fund (WEAT)
Teucrium provides a set of ETFs that track futures contracts for various popular agricultural commodities, with WEAT being one of the largest and most traded. WEAT offers investors pure-play exposure to wheat futures in any brokerage account without the need to trade futures directly. The ETF strongly outperformed this year due to the Russian invasion of Ukraine, which is one of the world’s largest producers and exporters of wheat. Through June 22, the fund is up 35% year to date. With food prices continuing to rise, WEAT may be poised to outperform further. The downside of WEAT is the high expense ratio due to the use of derivatives. Currently, this sits at 0.85%, or around $85 on a $10,000 portfolio.
Teucrium Corn Fund (CORN)
Beyond the corn on the cob and popcorn served nationwide at barbecues and movie theaters, corn remains a critical commodity that has important agricultural and industrial applications worldwide. Corn is used as animal feed, for biofuel, and in various artificial sweeteners and starches for processed foods. Like with wheat, when recessions and socioeconomic crises strike, the price of foodstuffs like corn tends to skyrocket due to increased demand and food insecurity. Using a futures-based ETF like CORN can be a good way to gain exposure to the price of corn without the use of a margin account and without trading futures personally. It’s not as popular as WEAT, so CORN has a significantly higher expense ratio, currently 1.14%.
Teucrium Soybean ETF (SOYB)
The third agricultural commodity of the “holy trinity” after wheat and corn are soybeans. This commodity is used heavily in oil production, wood substitutes, stationery and as animal feed. It also has important culinary uses in Asia and is an easily grown source of high protein. Like wheat and corn, the price of soybeans tends to soar when supply chains are strained and food prices are rising. Investors looking to speculate on soybeans can buy SOYB. Like WEAT and CORN, SOYB packages a portfolio of futures contracts into ETF form, making it easy for investors to buy and sell without opening a margin account. However, the ETF is also fairly expensive, costing an expense ratio of 1.16%.
Invesco DB Commodity Index Tracking Fund (DBC)
A great way to gain exposure to all the previously listed commodities through a single ticker is by buying DBC, which tracks a diversified basket of commodities. Currently, most of DBC’s futures contracts track fuels like New York Harbor ULSD, gasoline, Brent crude oil and West Texas Intermediate crude, with the remaining contracts spread out across aluminum, copper, natural gas, gold, wheat, corn, soybeans, zinc, sugar and silver. Although volatile, DBC has a low correlation with both stocks and bonds, making it an excellent portfolio diversifier when interest rates rise, causing stocks and bonds to fall in tandem. The ETF costs an expense ratio of 0.87% and is best suited for advanced investors.
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)
PDBC tracks the same basket of broad commodities as DBC does but with a major exception in its structure. Legally, DBC is structured as a commodity pool, also known as a limited partnership. In this structure, income and capital gains flow through to investors, who are considered partners. The consequence of this is a Schedule K-1 form to fill out at tax time, which can be a hassle. PDBC eliminates this requirement as it is structured as an open-ended fund. However, due to this, PDBC does spit out a higher level of distributions. The ETF’s high yield makes it rather inefficient to hold in a taxable account, which can cause some drag on total returns. However, PDBC is also less expensive than DBC, coming in with an expense ratio of just 0.62%.
8 of the best commodity ETFs to buy now:
— United States Oil Fund (USO)
— SPDR Gold Shares (GLD)
— iShares Silver Trust (SLV)
— Teucrium Wheat Fund (WEAT)
— Teucrium Corn Fund (CORN)
— Teucrium Soybean ETF (SOYB)
— Invesco DB Commodity Index Tracking Fund (DBC)
— Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)
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8 Best Commodity ETFs to Buy Now originally appeared on usnews.com
Update 06/23/22: This story was published at an earlier date and has been updated with new information.
