January 31, 2023

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9 Best Commodity ETFs to Buy Now

  • Assets under management: $1.9 billion
  • Expenses: 0.81%, or $81 annually for every $10,000 invested

The United States Oil Fund (USO, $70.54) is an exchange-traded product that is designed to reflect the price of West Texas Intermediate crude oil. USO gives regular folks an easy way to gain exposure to this key energy commodity. Over the past year, USO has delivered an impressive 17% gain.

However, USO is a complicated investment product, and investors should understand how it works before buying in. Though benchmarked to WTI, it’s not as simple as just bringing up the price of oil and then expecting this fund to move on a 1-to-1 basis.

USO allocates about 90% of its assets across futures contracts that come due in the next six months, and about 20% in the “front month” that is next in line. As the old futures contracts mature, it “rolls” the funds into longer-dated contracts to keep the exposure in roughly this same balance over time. 

There is obviously a bit of friction here based on the cost structure, and divergence can and does happen between short-term and long-term price trends. However, if you want a popular and simple way to play oil prices, then this commodity ETF is worth a look.

Learn more about USO at the USFC provider site.

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  • Assets under management: $539.3 million
  • Expenses: 1.1%

The sister to USO is the United States Natural Gas Fund (UNG, $11.03), a commodities ETF designed to track natural gas prices instead of oil.

Similar to the United States Oil Fund, the intricacies of UNG matter a lot if you want to know how it follows (or at times differs from) the day-to-day movements in natural gas markets. UNG is linked to the price of Henry Hub natural gas futures contracts traded on the NYMEX. What is crucial to understand, however, is that right now the fund only owns gas futures for February and March 2023 delivery. That means more exposure to near-term price trends – as well as a more active product that is forced to roll over funds more frequently.

Admittedly, this leads to a steep cost structure that is 10 times some of your typical equity index funds. However, the United States Natural Gas Fund is really the only viable natural gas ETF that trades in the U.S. The rest are either very small with just a few million dollars in assets or they are aggressive inverse or leveraged funds. 

After rising to a 14-year high in August, natural gas prices have rolled back sharply in recent months. Still, tight global gas supplies are predicted to persist for some time, which could create tailwinds for UNG down the road. 

Learn more about UNG at the USFC provider site.

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  • Assets under management: $55.9 billion
  • Expenses: 0.40%

One of the most popular commodity investments out there is gold, considering the precious metal is seen as a “store of value” that will hold strong in a rough environment. Additionally, gold has historically been uncorrelated to the stock market. 

The SPDR Gold Trust (GLD, $178.76) is not just the largest and most popular gold fund out there, but it is also the largest and most popular commodity-backed product on Wall Street.

GLD is tied to physical gold bullion prices rather than mining stocks, and gives direct exposure to the precious metal. It has a long list of competitors on Wall Street, including the nearly $950-million GraniteShares Gold Trust (BAR) whose expense structure is less than half of GLD. However, what SPDR Gold Trust offers is a well-established product with a deep pool of liquidity. 

If inflationary pressures or stock market volatility persist, this commodity fund could be a smart tactical investment in 2023.

Learn more about GLD at the SPDR provider site.

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  • Assets under management: $11.0 billion
  • Expenses: 0.50%

Though slightly smaller, the iShares Silver Trust (SLV, $22.05) is similar in many ways to the SPDR Gold Trust. 

SLV is a commodity ETF that is tied to physical silver instead of physical gold. While silver is technically a precious metal, it has more common uses in industrial and commercial applications. These include electrical connections, solar panels, chemical catalysts and more. That means that silver is more tied to general economic activity, which has weighed down silver in the last year or so.

However, this might also make silver an interesting play in 2023. As we potentially near the end of the geopolitical and inflationary disruptions that we’ve seen over the last year, then we could possibly see a big uptick in demand for silver that could lift this commodity fund.

As with GLD, you’ll find some cheaper alternatives out there, including the roughly $1 billion abrdn Physical Silver Shares ETF (SIVR). However, SLV is the runaway leader when it comes to trading volume and assets under management.

Learn more about SLV at the iShares provider site.

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  • Assets under management: $1.0 billion
  • Expenses: 0.60%

Can’t decide whether you like gold or silver better? Well, with the abrdn Physical Precious Metals Basket Shares ETF (GLTR, $92.31) from asset manager Aberdeen, you don’t have to decide.

The investment objective of GLTR is to provide a single-stop exposure to physical gold, silver, platinum and palladium bullion in one simple exchange-traded product. It is admittedly weighted more toward gold than anything else at present, with over half of assets in this precious metal and another fifth or so in silver. However, investors who want a cost-effective and convenient way to invest in physically backed precious metals have to just hold this one position and cover all four bases. 

Shares are slightly higher on the year thanks to this diversified approach to physical precious metals, and are up nearly 40% over the last five years. 

And perhaps best of all, there’s no reason to worry about storage at home in a safe or the difficult task of lugging around bars to buy or sell them. GLTR keeps its goods in a secured vault in the U.K. that is inspected twice per year. This makes it easy to buy and sell precious metals with peace of mind and far less hassle.

Learn more about GLTR at the Aberdeen provider site.

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  • Assets under management: $1.0 billion
  • Expenses: 0.91%*

Investors who want a cost-effective and convenient way to invest in agricultural commodity futures should take a closer look at the Invesco DB Agriculture Fund (DBA, $19.53). This is an important distinction that sets DBA apart from for-profit food and staples companies, as investors are getting direct exposure to the raw materials themselves rather than the corporations that rise and fall based on how they manage their input costs.

The fund is diversified across products that include soybeans, cattle, sugar, corn and wheat, with no single agricultural commodity representing more than 13% or so of the portfolio at present.

DBA is flat on a six-month basis as inflationary pressures have abated since mid-2022. Still, the commodities ETF has proven to be an effective hedge against rising prices.

While more expensive than your typical Nasdaq or S&P 500 fund, the wide exposure across 10 different agricultural products comes at a reasonable cost for those who don’t have the time or inclination to manage a diversified portfolio of ag futures contracts on their own.

* Includes 0.06% estimated futures brokerage fee

Learn more about DBA at the Invesco provider site.

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  • Assets under management: $6.3 billion
  • Expenses: 0.62%

The name says it all with the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC, $14.92). This exchange-traded fund is benchmarked to a basket of physical commodities to provide diversified exposure to raw materials. And it does so in a way that avoids the sometimes onerous K-1 tax forms that you can sometimes get when investing in futures markets.

If you’re unfamiliar, a K-1 is required for any investment that functions as a partnership – which, believe it or not, can apply to many publicly traded stocks or exchange-traded products. And when you invest in a partnership, you are taxed instead of the entity itself, and therefore have to reflect your share of the investment’s earnings, losses, deductions, credits and various other items on your personal returns each April.

With its simplified paperwork and a portfolio made up of futures contracts on 14 heavily traded commodities across the precious metals, industrial metals, energy, and agriculture sectors, it’s no surprise PDBC is one of the most popular commodities ETFs on Wall Street. 

Learn more about PDBC at the Invesco provider site.

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  • Assets under management: $3.4 billion
  • Expenses: 0.95%

Another popular and diversified commodity fund that forgoes K-1 tax forms is the First Trust Global Tactical Commodity Strategy Fund (FTGC, $24.47). This offering is similar to the aforementioned Invesco fund, but it differs in that it takes a more tactical approach to commodity markets based on what materials the fund’s managers think are hot right now.

At the moment, that means a bias away from energy commodities like crude oil and natural gas that are at the top of PDBC’s portfolio. Instead, it has nearly 44% of the portfolio allocated towards agricultural commodities.

If you’re interested in playing the continued inflationary pressures we’re seeing, then FTGC allows you to do so in a more active way. While energy products have certainly delivered in 2022, this First Trust fund may have something to offer if and when the interest moves away from this sector and into other areas of commodity markets.

Learn more about FTGC at the First Trust provider site.

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  • Assets under management: $1.4 billion
  • Expenses: 0.48%

Last but not least is the iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT, $28.14). This is another diversified and tactical commodity ETF, deploying a “dynamic roll” strategy. In other words, rather than rotating out of each futures contract based on a fixed calendar, COMT instead assesses the market conditions and seeks the best pricing opportunity.

Remember, the commodity funds featured here don’t have a warehouse that store gold bars or oil barrels. Rather, they invest in commodity futures – and as the name “futures” implies, these are contracts that eventually come due at a fixed point in the future. So if you want to maintain your position you have to exit before the expiration date, and “roll” that investment into a longer-dated contract.

This is where COMT adds value, with a strategy that maximizes profits during this process rather than simply being a victim of expiration. It’s a subtle but important difference. And as the icing on the cake, it does so without an overly costly strategy, offering one of the lower fee structures among commodity funds. 

Learn more about COMT at the iShares provider site.

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