Commodity ETF

AAA

DEFINITION of 'Commodity ETF'

Exchange-traded funds that invest in physical commodities such as agricultural goods, natural resources and precious metals. A commodity ETF may be focused on a single commodity and hold it in physical storage or may invest in futures contracts. Other commodity ETFs look to track the performance of a commodity index that includes dozens of individual commodities through a combination of physical storage and derivatives positions.

Because many commodity ETFs use leverage through the purchase of derivative contracts, they may have large portions of uninvested cash, which is used to purchase Treasury securities or other nearly risk-free assets.

INVESTOPEDIA EXPLAINS 'Commodity ETF'

Commodity funds often create their own benchmark indexes that may include only agricultural products, natural resources or metals. As such, there is often tracking error around broader commodity indexes like the Dow Jones AIG Commodity Index. Even so, any commodity ETF should be passively invested once the underlying index methodology is in place.

Commodity ETFs have soared in popularity because they give investors exposure to various commodities without them having to learn how to purchase futures and/or other derivative products.

VIDEO

RELATED TERMS
  1. Commodity Price Risk

    The threat that a change in the price of a production input will ...
  2. Dalian Commodities Exchange

    A commodities exchange located in Dalian, China. The Dalian Commodities ...
  3. Commodity Market

    A physical or virtual marketplace for buying, selling and trading ...
  4. Commodity-Backed Bond

    A commodity-backed bond is a type of debt security which is linked ...
  5. Euro ETF

    An exchange-traded fund that invests in the euro currency, either ...
  6. Commodity

    1. A basic good used in commerce that is interchangeable with ...
Related Articles
  1. 6 Popular ETF Types For Your Portfolio
    Mutual Funds & ETFs

    6 Popular ETF Types For Your Portfolio

  2. All Weather Investing With ETFs
    Mutual Funds & ETFs

    All Weather Investing With ETFs

  3. Commodities: The Portfolio Hedge
    Active Trading

    Commodities: The Portfolio Hedge

  4. Water: The Ultimate Commodity
    Mutual Funds & ETFs

    Water: The Ultimate Commodity

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center