13 commodity ETFs to ease inflation worries

These commodity funds offer investors exposure to the diverse asset class, which is particularly helpful in fighting inflation.

  • By Jeff Reeves,
  • Kiplinger
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For many investors who have been watching the headlines lately, fears of inflation have caused them to reassess their portfolios. After all, when prices rise and consumers' purchasing power is eroded, it can sometimes have a negative effect on certain industries or businesses.

One asset class that is sure to prove resilient amid persistently rising prices is commodities. From metals to agricultural products to energy sources, commodities of many different flavors have naturally seen their values rise amid inflationary pressures. As a result, most commodity stocks and commodity exchange-traded funds (ETFs) have been on a pretty profitable run lately.

Gaining exposure to physical commodities is no easy task, however. And while futures brokers are increasingly taking steps to welcome smaller retail traders, the learning curve can sometimes be steep.

Investors looking to get a foothold may want to consider commodity funds, which allow for more liquidity, cost effectiveness and ease of use.

Here's an introduction to 13 commodity ETFs that offer exposure to the diverse asset class. These funds provide investors with access to a wide variety of commodities futures and hard assets, including precious metals, crude oil and raw materials, that can often serve as a hedge against inflation.

Data is as of Sept. 15.

SPDR Gold Trust

  • Assets under management: $57.7 billion
  • Expenses: 0.40%, or $40 annually for every $10,000 invested

Gold is perhaps the most popular hard asset on the planet. And the SPDR Gold Trust (GLD) is the most popular way to play this commodity directly, as the fund tracks the performance of gold bullion prices.

This commodity ETF admittedly has plenty of competitors on Wall Street, including the cheaper bullion-backed iShares Gold Trust (IAU) that offers a lower annual expense ratio and the VanEck Merk Gold Trust (OUNZ) that allows investors to redeem shares for physical gold if they want to take delivery of this precious metal instead of just trading paper. However, with nearly $58 billion in assets under management, you simply cannot find a deeper and more established gold commodity fund than GLD.

Interestingly enough, shares of the SPDR Gold Trust are actually down slightly year-to-date in 2021 despite a lot of talk of inflation. But that's in large part because of a huge pandemic-induced run in early 2020 and the fact that buying pressure has cooled off a bit lately.

However, if ongoing inflationary trends do materialize, this commodity fund could prove to be a decent hedge against rising prices.

iShares Silver Trust

  • Assets under management: $13.0 billion
  • Expenses: 0.50%

Similar in many ways to the SPDR Gold Trust, the iShares Silver Trust (SLV) is a popular commodity fund that holds physical silver and aims to track the performance of this precious metal.

But while both gold and silver are popular hard assets, it's important to note that silver generally trades for a fraction of gold prices – like, in the low double-digit range per ounce compared with gold that currently is trading in the ballpark of $1,800 per ounce.

Similarly, silver is popular in many commercial applications including its use in electronics and various chemicals. This lower per-unit pricing and baseline industrial demand means silver sometimes can experience a lot more short-term volatility than gold.

Of course, while that could mean deeper losses if volatility swings the wrong way, it could also mean big-time profits if you time things right. Case in point: From early May 2020 through late August of that same year, SLV nearly doubled on hopes of both inflationary pressures and rising demand thanks to a recovering economy. Like gold, silver prices have dropped off a bit since then, but this illustrates the potential of a well-timed investment in the commodity fund.

Aberdeen Standard Physical Platinum Shares ETF

  • Assets under management: $1.2 billion
  • Expenses: 0.60%

You may not have necessarily heard of smaller asset manager and fund sponsor Aberdeen. However, the Aberdeen Standard Physical Platinum Shares ETF (PPLT) is worth noting. The commodity fund has about $1.2 billion in assets under management and provides investors a direct play on physical platinum.

Platinum is a fascinating material because it is actually more valuable per ounce than gold, and as a result follows many of the precious metal market trends.

But platinum isn't just pretty and valuable – chemically speaking, it is a dense, malleable and unreactive metal that makes it well-equipped for specialized applications including catalytic converters and fuel cells.

It's worth noting that platinum prices haven't exactly been rising with other commodities lately, and as a result, PPLT is actually down by about 13% year-to-date. However, for investors looking beyond the typical precious metals for a more unique play, platinum may be worth watching in the months ahead.

Invesco DB Commodity Index Tracking Fund

  • Assets under management: $2.4 billion
  • Expenses: 0.85%

One of the largest diversified commodity ETFs out there is the Invesco DB Commodity Index Tracking Fund (DBC). This fund seeks to track a basket of the 14 most heavily traded commodity futures contracts.

Admittedly, that means DBC is pretty energy-heavy as more than 50% of its assets are in related holdings. These include gasoline, low-sulphur diesel fuel and two forms of crude oil in both the Brent contract out of a key European port and West Texas Intermediate that is more closely aligned with North American production trends.

These are among the most popular futures products in the world for many reasons, so they dominate the portfolio. However, other commodities – including base metals like zinc and agricultural goods like corn and soybeans – also make an appearance.

Perhaps unsurprisingly, strong demand from end-users across the global economy coupled with inflationary pressures driving up raw material costs have been pretty good for the Invesco DB Commodity Index Tracking Fund in 2021. Shares of DBC have gained nearly 35% since Jan. 1, which is almost double the return of the S&P 500 (.SPX) in the same period.

Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF

  • Assets under management: $6.0 billion
  • Expenses: 0.59%

With more than twice the assets under management, this $6 billion Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) is the more popular sister to the Invesco DB Commodity Index Tracking Fund.

The strategy is effectively the same, but rather than a direct pure-play commodity fund, investors are instead tracking these raw materials via a more complex structure that is designed to avoid the dreaded K-1 tax forms that many find to be quite troublesome.

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 have to reflect that investment's earnings, losses, deductions, credits and sundry other things on your personal returns each April. But PDBC keeps it simple, and any gains or losses an investor realizes from this fund will show up on the standard 1099 form.

It's worth noting that because of its setup, futures contracts can only make up 25% of the fund's net assets, with the rest held in Treasuries and other U.S. debt securities. As a result, the more pure-play DBC fund is up about 36% in the last five years while the no K-1 PDBC has returned a slimmer, but still respectable, 22% over the same period.

However, if you see the value in sidestepping some tax paperwork, then PDBC could be the commodity fund for you.

iShares GSCI Commodity Dynamic Roll Strategy ETF

  • Assets under management: $2.7 billion
  • Expenses: 0.48%

Taking a different approach altogether is the iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT). Unlike the previous Invesco funds, the "dynamic roll" strategy implied by this commodity fund's name takes a more qualitative approach to rotating out of each futures contract. Specifically, it assesses the market and seeks the best pricing opportunity, instead of being rigidly tied to expiration calendars.

Keep in mind that most commodity ETFs on Wall Street – as well as the majority on this list – don't actually stockpile metal or oil in a warehouse somewhere, but instead invest in "paper" commodities via things like futures contracts on those goods. As the word "futures" implies, these contracts are tied to a specific date in the future. When these contracts expire, the fund needs to take a position in another contract tied to a future expiration date.

This is where COMT tries to add value, by seeking to maximize profits when the fund "rolls" one contract into another that's farther into the future instead of simply looking for the next available month on the calendar. It's a subtle but important difference, even if the list of holdings is similar to other commodity funds featured here, by focusing on the dozen or so most popular commodity contracts on Wall Street.

First Trust Global Tactical Commodity Strategy Fund

  • Assets under management: $1.8 billion
  • Expenses: 0.95%

The First Trust Global Tactical Commodity Strategy Fund (FTGC) is an actively managed commodity fund that seeks to provide investors with a bit more tactical exposure to raw materials than they would get via a fixed index fund.

FTGC is serviced by iconic Wall Street firm Brown Brothers Harriman, and while a bit more expensive than some of the other commodity ETFs on this list, it is a popular alternative investment with about $1.8 billion in assets.

The biggest holdings right now are mostly metals, with gold, copper, aluminum and silver futures at the top of the list. However, FTGC has the flexibility to go heavy into energy commodities like oil and gas or agricultural futures like corn or soybeans.

And based on its 2021 performance – the First Trust Global Tactical Commodity Strategy Fund has slightly outperformed the S&P 500 for the year to date – it does appear that the managers are on the right track.

Of course, active management cuts both ways and there is no guarantee that past performance will add up to future profits. But for investors who want to look beyond some of the more vanilla commodity funds out there, FTGC offers a decent alternative.

iPath Bloomberg Commodity Index Total Return ETN

  • Assets under management: $829.2 million
  • Expenses: 0.70%

The iPath Bloomberg Commodity Index Total Return ETN (DJP) is a bit smaller than other commodity funds out there at about $830 million in total assets, but it is perhaps the most balanced.

This ETF doesn't have a single commodity that is weighted at more than 12% of its portfolio – and while various crude oil and natural gas contracts are high on the list, they only represent about 28% of total assets.

Interestingly enough, this slightly more diversified approach to key commodities has resulted in outperformance so far in 2021. For the year to date, DJP has tacked on more than 32%.

There will certainly be moments in time where more targeted funds do better than the iPath Bloomberg Commodity Index Total Return ETN, as precious metals or energy commodities have their moment in the sun. But if you're looking for a longer-term holding that is a broad play on raw materials, DJP could be a better alternative than some larger commodity ETFs.

KraneShares Global Carbon ETF

  • Assets under management: $800.8 million
  • Expenses: 0.78%

Though most investors may think of oil or gold when they envision commodities investing, in the era of climate change concerns, there is increased activity in carbon trading markets. As a result, there has been more attention placed on funds like the KraneShares Global Carbon ETF (KRBN).

KRBN is benchmarked to the IHS Markit Global Carbon Index, which offers "broad coverage of cap-and-trade carbon allowances" on major emission exchanges worldwide. These include the world-leading European Union Emissions Trading System that's backed by a government mandate, as well as smaller initiatives like the Regional Greenhouse Gas Initiative in the Northeastern U.S. The latter is primarily opted into by states rather than regulated at the federal level.

Lest you think this is just a fund that is designed to make you feel better about environmental, social and corporate governance (ESG) investing, it's worth noting that the price of carbon credits in Europe have more than doubled in the last year or so as the region has gotten more aggressive on climate regulations and a recovering economy has created more demand. As a result, KRBN is up nearly 79% in the last year to more than double the performance of the S&P 500.

United States 12 Month Oil Fund

  • Assets under management: $146.2 million
  • Expenses: 0.88%

While carbon prices have been soaring lately, it's undeniable that fossil fuel-related commodities are among the most actively traded futures contracts on the planet.

And whether you're looking to hedge some risk amid the transition of the global economy or you simply see a short-term opportunity, the United States 12 Month Oil Fund (USL) is a popular and liquid commodity fund worth a look.

Instead of playing indirectly though energy stocks like Exxon Mobil (XOM), USL provides direct exposure to crude. Specifically, this fund is benchmarked to a basket of West Texas Intermediate crude oil futures contracts that expire in each of the next 12 consecutive months.

This means that you won't get true one-to-one performance based on the daily fluctuations in a barrel of oil, so the day-to-day moves in WTI won't be exactly reflected. However, the direction will be very similar as futures markets adjust to these real-time price changes.

Furthermore, the 12- month approach of USL avoids the big "front-month" risk that you might see by simply playing the next calendar month of futures contracts. Consider that its sister fund, the United States Oil Fund (USO), lost more than 60% over a week or two in spring 2020 as crude oil prices cratered – and then was forced to reformulate its approach so that only 80% is in the front month. The United States 12 Month Oil Fund offers a similar strategy to gain exposure to WTI futures, but with a slightly lower risk profile.

Teucrium Corn Fund

  • Assets under management: $119.7 million
  • Expenses: 1.95%

Though the smallest fund on this list with about $120 million in assets at present, the Teucrium Corn Fund (CORN) is one of the few ways for individual investors to get direct exposure to agricultural commodities – outside of learning how to directly trade futures contracts.

Corn is not just a foodstuff. It is used throughout the global economy as feed for livestock, fuel in ethanol and an industrial "chemical" used to create starches and sweeteners. It is also increasingly being transformed into plant-based plastics for companies looking to build more sustainable operations.

From an investing perspective, corn prices are also incredibly independent from the broader stock market. According to Teucrium research, between Jan. 1, 2001 through Dec. 31, 2020, the agricultural commodity had a tiny correlation coefficient of just 0.07 – where 1.00 is a one-to-one correlation with the S&P 500. By way of comparison, natural gas had a correlation of about 0.48 and precious metal silver had a correlation of 0.26.

The fund's expense ratio is admittedly a bit high at 1.15%, or $115 annually for every $10,000 invested. However, for a true alternative investment, exposure to corn via the CORN commodity fund is one to consider.

Invesco DB Base Metals Fund

  • Assets under management: $428.2 million
  • Expenses: 0.75%

The Invesco DB Base Metals Fund (DBB) is a mix of some of the most commonly used metals. The roughly $430 million ETF allows investors exposure to key industrial demand trends through its holdings of copper, aluminum and zinc.

Collectively, this trio of metals covers a huge array of products and services provided by the global economy, ranging from copper wires and pipes in houses, aluminum cans to automobile parts, and bathroom fixtures to musical instruments.

As you can imagine, prices for these metals tend to go up and down with broader economic cycles. And as the global economy continues to improve from the COVID-19 disruptions of 2020, this cyclical demand has helped push DBB to a slight edge over the S&P 500 in terms of year-to-date performance (+24% vs. +19%).

And we have seen movement lately on the trillion-dollar infrastructure bill that was advanced in August by the U.S. Senate. As such, it may be worth considering a position in base metals as a way to play broader economic activity and construction spending.

VanEck Vectors Gold Miners ETF

  • Assets under management: $13.5 billion
  • Expenses: 0.51%

While the vast majority of commodity funds on this list deal directly with raw materials through exposure to futures markets, the VanEck Vectors Gold Miners ETF (GDX) is worth calling out. As the name implies, GDX is not focused on gold itself, but rather on publicly traded gold miners that manage gold reserves and extract the precious metal from the ground.

This is an important distinction because even though miners do generally benefit from rising gold prices, they also have to worry about input costs and overall operating efficiency. Additionally, as publicly traded stocks, they ebb and flow in some ways just like the broader S&P 500 Index does – though, obviously, miners may perform a bit better or worse than other companies based on market conditions.

Investing in gold miners via this ETF isn't as direct a play on the commodities complex as other funds on this list. But for those investors primarily concerned with precious metals as a hedge or simply looking for a commodities-related fund that is more familiar to them than some of the sophisticated offerings in this lineup, GDX is a decent pick to consider.

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© 2021 The Kiplinger Washington Editors, Inc.
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