What is a commodity exchange-traded fund (ETF)?
Investing in physical commodities, such as natural resources, agricultural goods and precious metals is known as commodity exchange-traded funds (ETFs). An ETF is a tradable security that listed on a stock market and behaves just like a share.
Key takeaways
Commodity ETFs are tradable securities listed on stock markets that provide investment exposure to physical commodities like natural resources, agricultural goods, and precious metals, functioning similarly to shares.
These ETFs track commodities by owning underlying assets such as bullion or futures contracts, with major examples including SPDR Gold Shares, iShares Silver Trust, and SPDR S&P Oil & Gas Exploration and Production ETF.
The price of commodity ETFs rises and falls in line with the performance of their underlying assets, which are comprised of futures or asset-backed contracts tracking specific commodities or commodity groups.
Commodity ETFs offer investors a convenient way to gain commodity exposure without using a commodity broker, and unlike mutual funds, they can be bought and sold throughout the trading day.
Where have you heard about commodity ETFs?
As an investor, you may have received marketing literature promoting investment in commodity ETFs. Your adviser may have suggested including a commodity ETF in your portfolio. Financial media sometimes debate the pros and cons of investing in commodity ETFs.
What you need to know about commodity ETFs.
Commodity ETFs can track any one of a number of commodities, including gold and silver, such as Two of the largest known ETFs: the SPDR Gold Shares and iShares Silver Trust; and oil, such as the SPDR S&P Oil & Gas Exploration and Production ETF. They do this by owning the underlying asset, whether bullion or futures in relation to that commodity. Investors then buy shares in these underlying assets.
The price of a commodity ETF will rise and fall in line with the fortunes of the underlying assets. Instead of underlying securities like public stocks, commodity ETFs are comprised of futures or asset-backed contracts that track the performance of a particular commodity or group of commodities.
Commodity ETFs can be a good way to get exposure to commodity investment without having to go through a commodity broker. Unlike mutual funds, with which they have something in common, they can be bought and sold throughout the trading day.