Commodity ETFs explained

Find out more about ETCs, which allow you to invest in commodity price movements.

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results

A commodity ETF – or exchange traded commodity (ETC), to give them their official name – is a type of exchange traded fund that is designed to track the price of a particular commodity such as gold, oil or silver.

They are used primarily as a means of diversification or hedging. Say, for instance, that you are worried about the impact of inflation on your portfolio. Gold is known to be a good inflation hedge, so a gold-tracking ETC could be a way of mitigating that risk.

ETCs offer a means of getting the benefits of investing in commodities without the hassle that comes with dealing in the assets themselves. You never have to worry about taking delivery of large amounts of commodities, or when your future might expire. Instead you can buy and sell ETCs within minutes, on the internet or over the phone.

How have ETCs performed?

12 months ago, ETCs were performing poorly – mostly as a result of significant concerns over China and its slowing economic growth. Around 40% of world’s commodity consumption goes through China, so any news from the world’s second-biggest economy can have a huge impact on commodity prices.

But 2016 saw fears over China’s economy largely subside. Evidence mounted that growth was going to plateau rather than drop off a cliff, with government stimulus looking very strong towards 2020. And consumption of the top four commodities used in China didn’t slow at the rates predicted by the market.

What 2017 will bring is dependent on a wide range of factors: China will once again be key, as will President Trump and his energy plans.

What does the ETC market look like?

At the moment, the ETC market is equally divided between the US and Europe. It comprises around $80 billion, which is quite a small portion of the overall commodity investments market.

That isn’t particularly surprising. Major players like central banks, for instance, have the means to hold gold directly, so have little need to delve into the ETC market. 

What are the most popular commodity ETFs?

On the IG platform, some of the most-traded commodity ETFs are:

  1. ETFS Gold, provided by ETF Securities
  2. ETFS Wheat, ETF Securities
  3. ETFS Natural Gas, ETF Securities
  4. ETFS WTI Crude Oil, ETF Securities
  5. ETFS Coffee, ETF Securities
  6. ETFS Brent Crude, ETF Securities
  7. ETFS Copper, ETF Securities
  8. ETFS Silver, ETF Securities
  9. iShares Physical Gold ETC - SGLN, iShares by BlackRock

Data from IG, March 2017

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