Individual commodities perform differently from one another.
In broad brush strokes, a stock portfolio consisting of 60% equities and 40% bonds has historically been considered ideal for creating returns while keeping risk in check. Within those baskets, some investors may want to put money into stocks or bonds of commodities producing firms, such as miners or oil producers. But there are other ways to invest in commodities, which some investors say should make up 5% of a diversified portfolio, as they often behave differently than equities. These alternative investments include exchange-traded funds, or ETFS, that offer physical or futures-based commodities exposure. Here are eight of the best commodity ETFs to consider.
Abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (ticker: BCD)
ETFs offer diversification in a single-ticker package. Some offer the diversification that can come from holding many companies. BCD does something similar with commodities exposure. It tracks the Bloomberg Commodity Index, which includes exchange-traded contracts linked to physical commodities including corn, gold, oil, wheat, copper, sugar and hogs. The ETF is up 13.1% in 2022 as of Dec. 27. With the S&P 500 down 19.7% over that period, BCD is an example of how commodities can provide a cushion against falling stock prices. The fund has a 0.29% expense ratio, or $29 for every $10,000 invested annually.
United States Oil Fund (USO)
One downside to the diversification within BCD is that the outperformance of commodities such as West Texas Intermediate, or WTI, crude oil is tempered by other commodities that don’t perform as well over a given period. Those who are bullish on oil, the world’s most widely traded commodity, may want to consider USO, which tracks the performance of near-month WTI crude oil futures contracts. Keep in mind that oil futures are volatile, and their trajectory depends on where traders think the economy is going as much as on actual economic performance. A recession would dampen demand for oil, for example, and remains a downside risk for this fund. USO charges a 0.81% expense ratio.
United States Copper Index Fund (CPER)
Another commodity whose price is dependent on the economy and economic expectations is copper. Because copper is widely used for wires and pipes in industry and housing, it is sometimes referred to as Dr. Copper as if it had an advanced degree in economics. Declining orders for copper tend to foreshadow economic malaise. But the opposite is true, too. CPER offers an alternative way for investors to get exposure to the industrial metal than investing directly in futures. This fund does that for you by reflecting the performance of the investment returns from a portfolio of copper futures contracts traded in New York. CPER has a 0.85% expense ratio.
SPDR Gold Shares (GLD)
Gold is also a metal, but it often performs differently than copper. While copper generally trades in tandem with economic expectations, gold is often considered a safe haven and can rise even amid negative economic forecasts. Because gold is a store of value, it competes against other relatively safe investments, such as the U.S. dollar and Treasury bonds. You can invest in gold through miners or futures, but GLD provides an alternative. The fund holds deposits of physical bullion in vaults, with each share of GLD representing a claim to a fraction. That means when you buy shares, you own physical gold without having to pay to store and insure it yourself. GLD has a 0.4% expense ratio.
Abrdn Physical Platinum Shares ETF (PPLT)
Platinum straddles the worlds of gold and copper. While the precious metal is used in jewelry in a similar fashion to gold, platinum is also widely used for industrial purposes, such as automobile catalytic converters and in petroleum refining. The green economy also uses platinum in electrolyzers to make hydrogen and in hydrogen fuel cells that produce electricity. Investors thinking about taking the plunge with platinum will want to keep track of those industries. Like GLD, this platinum ETF also holds physical metal in vaults. One advantage to this method is that the funds’ buying of the precious metals on the market is supportive of prices. PPLT has a 0.6% expense ratio.
Teucrium Soybean ETF (SOYB)
Soybeans are a globally traded commodity, with China by far being the biggest consumer. The beans are used to make soybean oil and meat substitutes for human consumption. But they also form an important part of livestock diets on industrial farms. Whether choosing SOYB or direct investment in futures, soybean investors will also want to pay attention to the supply dynamics, including how much acreage is planted and how growth and harvest progress. The U.S. and Brazil are the world’s largest producers. SOYB packages a portfolio of futures contracts into ETF form, making it easy for investors to buy and sell without opening a margin account. The fund has a 1.16% expense ratio.
Teucrium Wheat ETF (WEAT)
Like soybeans, the price of wheat tends to rise when supply chains are strained and food prices are rising, making it another good inflation hedge. Wheat prices have been elevated as high energy prices have boosted the costs for fertilizer, running farm equipment and transporting harvests — illustrating how inflationary pressures can overlap among commodities. Wheat prices also rose and fell as Russia’s war in Ukraine affected two large wheat-supplying nations, which is an example of how commodities can be volatile because of geopolitical issues. “Demand for wheat is rising exponentially due to world population growth and the expansion of the global middle class,” Teucrium says on its website. WEAT charges a 1% expense ratio.
Teucrium Corn ETF (CORN)
A growing global population that is becoming more affluent is also one of the reasons people may want to invest in corn. The grain feeds humans directly but also cattle and other livestock that provide protein to the masses. In addition to feed, the crop is used to produce fuel, starch, sweetener and plastic. “Corn prices have a historically low correlation with U.S. equities making CORN a potentially attractive option for portfolio diversification,” Teucrium says on its website. The fund is up 23.6% this year through Dec. 27 and charges a 1.76% expense ratio.
8 best commodity ETFs to buy now:
— Abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (BCD)
— United States Oil Fund (USO)
— United States Copper Index Fund (CPER)
— SPDR Gold Shares (GLD)
— Abrdn Physical Platinum Shares ETF (PPLT)
— Teucrium Soybean ETF (SOYB)
— Teucrium Wheat ETF (WEAT)
— Teucrium Corn ETF (CORN)
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8 Best Commodity ETFs to Buy Now originally appeared on usnews.com
Update 12/28/22: This story was published at an earlier date and has been updated with new information.
