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Should commodities have a role in your portfolio?

Key takeaways

  • With inflation continuing to prove persistent, investors may be reevaluating whether their portfolios include sufficient inflation protection.
  • Commodities can potentially offer a degree of protection against worse-than-expected inflation.
  • That said, because of their history of low long-term returns and high volatility, investors who decide to invest may want to consider keeping any allocations to commodities relatively small and well diversified.

The current bout of inflation we're facing has already defied expectations many times. What was first labeled a "transitory" rate of price increases seems instead to be proving persistent.

The rate of inflation has come down markedly in the past year as the Fed's interest-rate hikes have taken effect. For example, the annual rate of change in the Consumer Price Index has declined from a high of 9.1% in June 2022 to 5.0% in March. But that rate is still elevated compared with historical levels and compared with the 2% level that's generally considered healthy for the economy.

While it's always possible that inflation could decline steadily and smoothly back to that 2% sweet spot, there's also a real chance that it could remain at an elevated level for some time. Given that risk, some investors may be taking a second look at investments traditionally considered "inflation hedges," like commodities.

While commodities have historically performed well during most periods of high inflation, it's important to remember they are a unique asset class. Commodities have historically behaved differently from stocks and bonds, including rising and falling at different times (put another way, they tend to have low correlations with traditional investments). Performance of stocks and bonds may depend on considerations like the issuer's business prospects, the current phase of the business cycle, and the current interest-rate environment. Performance of commodities depends more on the supply and demand for the commodity itself—which can be influenced by the economy, but also by weather patterns, production decisions by OPEC, and more.

Compared with traditional asset classes, commodities' performance has been highly volatile, and has often lagged over longer periods. So investors should think carefully about their objectives and risk tolerance before establishing an allocation to the asset class.

Types of commodity investments

Commodities generally fall into 3 categories—energy, metals, and soft commodities. Energy includes oil, natural gas, and more. Metals include precious metals like gold, but also industrial metals like aluminum and copper. And soft commodities include agricultural products like grains, livestock, and coffee.

A challenge posed by the asset class is that it is neither feasible nor economical to directly invest in commodities (which would entail directly buying barrels of oil and bushels of wheat). Instead, investors generally have 2 options: investing in commodity futures contracts, or investing in shares of commodity-producing companies (like oil producers and gold miners).

Neither of these types of instruments provides perfect price tracking of the day-to-day spot price movements of the underlying commodities. But each can offer some exposure. Performance of futures can reflect both current price movements and expectations for future price movements of the commodities (a futures contract is a contract to buy or sell something at a set price on a set future date). Performance of commodity-related stocks can reflect changes in the commodity's price but also other factors, like macroeconomic conditions and company-specific considerations. (Learn more about the pros and cons of commodity investing.)

While some investors may prefer to choose and manage a portfolio of individual commodity investments themselves, many may be better served by the diversification and liquidity of mutual funds and ETFs (scroll down for the steps to research commodity funds and ETFs on

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What role in a portfolio?

The appropriate way to think about commodities is as a specific type of insurance, says Larry Rakers, portfolio manager and group leader with Fidelity's Strategic Advisers. "The reason you would consider commodities is that they have often risen in value with rising inflation expectations," he says.

But because their performance has historically lagged stocks and bonds over the long term, commodities may not be an all-weather investment. Naveen Malwal, institutional portfolio manager with Fidelity's Strategic Advisers, notes that for this reason his team doesn't always maintain positions in commodities.

"We believe that a diversified mix of US and international stocks, bonds, and short-term investments can lead to long-term growth in a risk-managed way," he says. "We believe commodities can be helpful at times. But we tend to think of that as a position we take on occasion, as opposed to a foundational position that we always have in a portfolio."

While many investors expect inflation to decline from here, it could always defy expectations yet again by rising or persisting at higher-than-expected levels. In that scenario, an allocation to commodities could provide a benefit. Rakers adds that the asset class can also provide a degree of insurance against geopolitical risk, such as a war or military conflict which could pressure grain and energy prices.

Investors who are concerned about inflation surprises and want to establish an allocation to commodities should think carefully about what type of vehicle to choose. While there are many funds and ETFs that specialize in tracking only one commodity, a fund that offers broad diversification may come with less volatility.

Chart shows that prices of oil, nickel, and wheat have been individually more volatile than a diversified commodity index.
Past performance is no guarantee of future results. Prices are indexed to a starting level of 100 as of April 10, 2020. The Bloomberg commodity index tracks the performance of rolling futures on 21 commodities and is weighted based on economic significance and market liquidity, subject to weighting limits. Soft red wheat represents the indexed price per bushel of benchmark US wheat futures traded on the Chicago Mercantile Exchange. Crude oil represents the indexed price per barrel of light sweet crude oil traded on the New York Mercantile Exchange. Nickel represents the indexed US-dollar-based price per metric ton of nickel futures traded on the London Mercantile Exchange. Source: FactSet. Data as of April 11, 2023.

"It is incredibly hard to predict the direction of individual commodities," Malwal says. So if you've decided to add commodities to your portfolio, consider keeping the allocation relatively small, and well diversified.

Finding ideas

Investors interested in establishing a position in commodity-linked investments can research mutual funds and ETFs on Below are the results of some illustrative mutual fund and ETF screens (these are not recommendations of Fidelity).

Fidelity mutual funds

  • Fidelity® Select Materials Portfolio ()
  • Fidelity® Global Commodity Stock Fund ()

Exchange-traded funds (ETFs)

  • Invesco DB Commodity Index Tracking Fund ()
  • iShares GSCI Commodity Dynamic Roll Strategy ETF ()
  • iShares S&P GSCI Commodity-Indexed Trust ()

How to research commodity funds and ETFs

As mentioned above, before you establish an allocation to commodity-linked investments it's important to consider what type of exposure you're seeking: exposure to changes in commodity prices (via investing in futures) or to shares of commodity producers. An additional consideration may be whether you invest with a traditional mutual fund or with an ETF (learn more about deciding between mutual funds and ETFs).

Research mutual funds
Start with the Fidelity fund screener

Research ETFs
Start with the Fidelity ETF/ETP* Screener

Commodities futures funds

  • Under Quick Criteria, select the dropdown labeled Asset Class and Category
  • Check the Commodities box
  • Click the green View Funds bar

Commodities futures ETFs*

  • On the left-hand navigation bar, look for the heading Basic ETF/ETP Facts
  • Click Asset Class
  • Check the box next to Commodities
  • ETFs will appear to the right

Commodity-related stock funds

  • Under Quick Criteria, select the Asset Class and Category dropdown
  • Scroll down to Sector Equity and click the right-facing arrow to expand the list
  • Select Natural Resources (also select Equity Energy and/or Equity Precious Metals to consider funds with those focuses)
  • Click the green View Funds bar

Commodity-related stock ETFs

  • On the left-hand navigation bar, scroll down until you see Exposures, and click the + sign to expand
  • Click Sector Exposure
  • Select Equity: Materials (also select "Equity: Energy" to consider ETFs that focus on the energy sector)
  • ETFs will appear to the right

As you begin to home in on potential investment candidates, some issues and characteristics to consider include:

  • Whether the fund has broad exposure to a range of commodities or is concentrated
  • Whether the fund aims to track an index or is actively managed
  • The fund's expense ratio and any potential sales charges
  • The investment structure the fund uses to achieve its objectives (such as a trust or limited partnership), which can bring unique risks and tax implications

When examining the fund's track record, don't only focus on the returns level—pay attention to volatility too. Commodities can be an extremely volatile asset class, so it's important to be comfortable with the potential level of price swings before you make an investment.

The Fidelity screeners are research tools provided to help self-directed investors evaluate these types of securities. The criteria and inputs entered are at the sole discretion of the user, and all screens or strategies with preselected criteria (including expert ones) are solely for the convenience of the user. Expert screeners are provided by independent companies not affiliated with Fidelity. Information supplied or obtained from these screeners is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell securities, or a recommendation or endorsement by Fidelity of any security or investment strategy. Fidelity does not endorse or adopt any particular investment strategy or approach to screening or evaluating stocks, preferred securities, exchange-traded products, or closed-end funds. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from its use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation, and other individual factors, and reevaluate them on a periodic basis.

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More to explore

*Not all ETFs on this list may gain exposure through futures. For example, some products may instead aim to track the price of gold by holding gold bullion in trust.

Past performance is no guarantee of future results.

Views expressed are as of the date indicated and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity Investments.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Investing involves risk, including risk of loss.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities). Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Lower-quality fixed income securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Foreign investments involve greater risks than U.S. investments, and can decline significantly in response to adverse issuer, political, regulatory, market, and economic risks. Any fixed-income security sold or redeemed prior to maturity may be subject to loss.

The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. <Commodity-linked investments can be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets, as well as by weather, disease, and regulatory developments.>

Commodity ETPs are generally more volatile than broad-based ETFs and can be affected by increased volatility of commodities prices or indexes, as well as by changes in supply and demand relationships, interest rates, monetary and other governmental policies, or factors affecting a particular sector or commodity. ETPs that track a single sector or commodity may exhibit even greater volatility. Commodity ETPs that use futures, options, or other derivative instruments may involve still greater risk, and performance can deviate significantly from the spot price performance of the referenced commodity, particularly over longer holding periods.

Fidelity does not offer futures trading. The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance. The S&P GSCI index is a broad-based production-weighted index that measures commodity market performance through futures. The S&P United States REIT index is a float-adjusted market-cap weighted index that measures the investable universe of publicly traded real estate investment trusts domiciled in the United States. The S&P US TIPS index is a market value-weighted index that seeks to measure US TIPs market performance. Discretionary portfolio management services are provided by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FBS, and NFS are Fidelity Investments companies.

Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus, an offering circular, or, if available, a summary prospectus containing this information. Read it carefully.

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