Raw materials are a crucial part of the supply chain for every company and a key part of the global economy. Taking a direct stake in these commodities can be an important way to diversify your investment portfolio or to provide a hedge against problems you see for these materials. And in some cases, a direct play on an agricultural commodity like corn or a precious metal like gold could be a profitable short-term trade. Getting direct exposure to commodities in most cases, however, requires opening a futures account and learning how to trade this unique asset class. But for investors looking to dabble in commodities, here are the best commodity exchange-traded funds to gain exposure directly in a brokerage account and buy and sell these assets just like a stock.
United States 12 Month Oil Fund
When most investors think about raw materials and potential, they think first about a commodity ETF tied to crude oil. After all, crude oil futures are among the most liquid commodity futures contracts as measured by both volume and open interest. For investors looking for an exchange-traded way to get direct access to this energy commodity, one of the top names on their list should be USL (USL). This is not an indirect play via major oil stocks like Exxon Mobil Corp. (XOM); it's benchmarked to futures contracts that expire in each of the next 12 consecutive months. While there are more popular funds out there, USL's structure has helped it avoid the volatility that shorter-term oil funds have suffered in 2020.
United States 12 Month Natural Gas Fund
The pair to USL, UNL (UNL) is a commodity-backed fund that is benchmarked to liquid natural gas instead of crude oil. This commodity ETF is designed to track natural gas prices by holding 12 months' worth of futures contracts on natural gas that are traded on the New York Mercantile Exchange. Thanks to fracking, or hydraulic fracturing technology, U.S. natural gas production has exploded over the last decade or so. However, as with oil, prices for this commodity may remain volatile. Whatever your view, if you're looking to play trends in natural gas, then UNL is the easiest way to do that in a commodity ETF.
SPDR Gold Trust
Gold is a popular asset among investors of all kinds. Some see the precious metal as a store of value in tough times and a hedge against inflation or simply want to play the short-term ups and downs in the gold market. However, storing gold at home can be a difficult proposition. It's risky if you're afraid of theft, and it's costly if you have a substantial amount you need to store in a safe and insure. Furthermore, selling physical gold is much harder than simply trading out of a commodity ETF in your brokerage account. That makes a fund like GLD (GLD) perfect for commodity investors, as the fund's holdings are benchmarked to gold bullion but trade without the hassle.
iShares Silver Trust
Very similar in structure to GLD is this iShares fund that holds physical silver instead of gold. While both gold and silver are precious metals, there is a big difference in how these commodities perform, since silver has more common uses in industrial and commercial applications. These include medical instruments, electronics and solar panels. If gold is difficult to store, bars of silver are next to impossible – at least at scale. That's because silver trades for less than $20 per ounce compared with more than $1,700 for gold, meaning roughly 100 times more coins or bars to store the same amount. A fund like SLV (SLV) is perhaps the only way to buy and sell a play on physical silver at volume.
Invesco DB Base Metals Fund
A mix of some of the most commonly used metals, the DBB (DBB) commodity ETF holds futures backed by zinc, copper and aluminum. Collectively, these goods are used across a wide variety of applications such as copper wires and pipes in houses, aluminum cans and automobile engines, and zinc to make the alloy of brass in zippers and musical instruments. As you can imagine, these metals tend to go up and down with broad industrial trends seeing as they have so many purposes. Though some fear a global manufacturing downturn could weigh on raw materials, DBB may be worth a look if you hope to plan for a recovery in demand later this year or going into 2021.
Teucrium Corn Fund
Corn is one of the most sought-after agricultural commodities on the planet. According to the U.S. Department of Agriculture, domestic corn planting in spring 2020 hit another record at 97 million acres planned – the largest amount since 2012. That's a sign of tremendous demand for this agricultural commodity, but for many individual investors, there's no easy way to play trends in this crop directly. That's where the Teucrium Corn Fund (CORN) comes in, using futures contracts as the underlying investment. Opening up a futures account and learning this asset class can be challenging for any investor, so this exchange-traded product takes the guesswork out of the process and offers a simple avenue to invest via a commodity ETF.
Teucrium Soybean Fund
Soybeans and soybean futures contracts are also among the most frequently traded commodities and have been a particular focus of recent trade negotiations between President Donald Trump and China. This sister fund from Teucrium offers a direct way to invest in this product without trading commodity futures on their own. SOYB (SOYB) also "rolls" the underlying futures. The fund uses weightings across different time frames and a structure that accommodates the specifics of the soy growing season in the U.S. since the underlying contracts that make up SOYB are traded on the Chicago Board of Trade.
Invesco DB Commodity Index Tracking Fund
Can't decide which one of these commodity ETFs is worth a spot in your portfolio, but still feel you need exposure to tangible materials like energy and agricultural products? Then consider the one-stop investment of this Invesco exchange-traded product. The DBC fund (DBC) is composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world. That includes metals like gold, grains like corn, energy like crude oil and natural gas and a host of other goods. If you simply want a play on raw materials without the ups and downs of a specific commodity type, consider this fund. With almost $800 million in assets under management, it is among the most popular investments to gain broad exposure to commodities.
iShares S&P GSCI Commodity-Indexed Trust
Like DBC, this iShares commodity ETF (GSG) is benchmarked to a basket of commodities – specifically, energy, industrial and precious metals, agricultural and livestock. About half the fund is in energy, as crude oil and natural gas contracts tend to dominate commodity markets, but there are plenty of industrial metals and agricultural goods in the mix, too. With net assets of more than $500 million, the fund is substantial enough to be a viable way to play the universe of all commodities via one single holding.
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