Commodity ETFs

Commodity exchange traded funds (ETFs) offer investors the chance to gain exposure in the commodities sector without the necessity of purchasing the actual physical commodities themselves. Commodity ETFs typically track the performance of a single commodity or a sector within the commodities market. Some commodity ETFs, however, offer a basket of various commodity securities in order to provide near-instant diversification in one commodity ETF fund; these securities are also known as broad commodity indexes or broad commodity ETFs. Commodity exchange traded notes (ETNs) are based on the same types of underlying securities, but are debt instruments rather than tradable funds. While commodity ETNs do not pay interest, they are treated in the same manner as other tradable debt instruments. Additionally, the performance of commodity ETFs may not exactly mirror the value of the underlying commodity; this is due to other factors including production costs and unforeseen expenses that may affect the cost of producing the commodities in question.

Commodity ETF and ETN sectors

Just as there are numerous varieties of commodities, so too there are a number of different commodity ETF types and general sectors. Industrial metals are a major sector, and include aluminum, copper, tin, lead and nickel concerns; these are usually available as commodity ETNs. Precious metals are another important sector; these are available as individual metals or as baskets and include gold, silver, platinum, and palladium securities. Energy commodity ETFs cover oil, natural gas, heating oil, and gasoline. Finally, agricultural commodity ETNs and ETFs include individual commodities like coffee, cocoa, sugar, livestock, grains, biofuels, and cotton. In addition, commodity ETF baskets are available that incorporate the stocks of companies that deal in all the above commodities.

Commodity ETF list

Like other ETFs, commodity ETFs are available in long, short, and leveraged options to provide maximum flexibility for investors. The wealth of commodity ETF basket options provides welcome diversity for most portfolios and makes commodities trading one of the most popular ETF choices. No commodity ETF list is comprehensive, but these are some of the most popular commodity ETFs on the market today.

  • E-TRACS DJ-UBS Commodity Index Total Return ETF (DJCI)
  • ELEMENTS Rogers International Commodity Index ETN (RJI)
  • ELEMENTS S & P Commodity Trends Indicator ETN (LSC)
  • ETFS All Commodities ETF (AIGC-LSE)
  • ETFS All Commodities Sterling ETF (AGCP-LSE)
  • ETFS Ex-Energy ETF (AIGX-LSE)
  • Goldman Sachs Commodity Index (GSCI) Total Return Index ETN (GSP)
  • GS Connect S & P GSCI Enhanced Commodity Total Return Strategy ETN (GSC)
  • iShares GSCI Commodity-Indexed Trust Fund (GSG)
  • PowerShares DB Commodity Index Tracking Fund (DBC)
  • ProShares Ultra DJ-AIG Commodity ETF (UCD)
  • ProShares UltraShort DJ-AIG Commodity ETF (CMD)
  • PowerShares DB Commodity Double Short ETN (DEE)
  • PowerShares DB Commodity Double Long ETN (DYY)
  • PowerShares DB Commodity Short ETN (DDP)
  • PowerShares DB Commodity Long ETN (DPU)
  • ETFS Short All Commodities ETF (SALL-LSE)
  • ETFS Short Ex-Energy ETF (SNEY-LSE)
  • Dow Jones-AIG Commodity Index Total Return ETN (DJP)

Other issues

A situation sometimes arises in which the futures price for a given commodity is higher than the current spot price for that same commodity. Known as commodity ETF contango, this is most often seen in precious metals, especially gold, and is generally related to the carrying costs of these commodities. Commodity ETF contango can create issues with the current valuation of the commodity ETF, since it can produce negative roll yield and reduce the return on investment for these funds. Diversification is one solution to this problem; another is to allow investors to buy in to commodity ETFs along the curve, allowing them to spread their investment over months and years in order to ensure the best possible pricing and consequent return on investment on commodity ETF purchases.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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