Many investors are hesitant to buy individual commodities, but exchange-traded funds (ETFs) make this area accessible to a broader range of investors. Commodities can be a useful hedge against inflation, and they help diversify investment portfolios beyond more traditional stocks and bonds. Commodities such as silver and palladium also are seen as safe havens in times of market uncertainty, while demand for a commodity like copper may strengthen due to increasing manufacturing and construction activity.

Commodities ETFs offer a way to gain exposure to one or more commodities while reducing the risk inherent in investing directly in a single one.

Key Takeaways

  • Commodities have outperformed the U.S. stock market in the last year.
  • The commodities exchange-traded funds (ETFs) with the best one-year trailing total return are BDRY, GRN, and UGA.
  • The main holdings of these ETFs are dry bulk futures contracts, carbon emissions credits futures contracts, and gasoline futures contracts, respectively.

There are 51 commodities ETFs that trade in the United States, excluding inverse and leveraged funds as well as those with under $50 million in assets under management (AUM). These ETFs provide exposure to physical commodities, not commodity-producing companies.

Commodities, as measured by the S&P World Commodity Index, have outperformed the U.S. stock market over the past 12 months, with a total return of 44.9% compared to the S&P 500’s total return of 34.5%, as of Aug. 6, 2021. The best-performing commodities ETF for the fourth quarter (Q4) of 2021, based on performance over the past year, is the Breakwave Dry Bulk Shipping ETF (BDRY).

We examine the top three commodities ETFs below. All numbers are as of Aug. 9, 2021.

Breakwave Dry Bulk Shipping ETF (BDRY)

  • Performance Over One-Year: 210.8%
  • Expense Ratio: 3.76%
  • Annual Dividend Yield: N/A
  • Three-Month Average Daily Volume: 419,338
  • Assets Under Management: $88.3 million
  • Inception Date: March 22, 2018
  • Issuer: ETFMG

BDRY is structured as a commodity pool, a private investment structure that combines investor contributions to trade the futures and commodities markets. The ETF provides exposure to the dry bulk shipping industry, a key part of the global commodity market, by tracking the Breakwave Dry Freight Futures Index, which consists of futures contracts on specified indexes that measure rates for shipping dry bulk freight.

BDRY is designed to reflect the daily price movements of near-dated dry bulk futures contracts. The fund’s holdings consist of freight futures with a weighted average of approximately three months to expiration.

iPath Series B Carbon ETN (GRN)

  • Performance Over One-Year: 113.6%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: N/A
  • Three-Month Average Daily Volume: 67,931
  • Assets Under Management: $68.1 million
  • Inception Date: Sept. 10, 2019
  • Issuer: Barclays Capital

GRN is an exchange-traded note (ETN) tracking the Barclays Global Carbon II TR USD Index. The index provides exposure to the price of carbon as measured by the return of futures contracts on carbon emissions credits from the European Union (E.U.) Emission Trading Scheme and the Kyoto Protocol’s Clean Development Mechanism. This essentially makes GRN a play on global warming.

All of the futures contracts in GRN’s portfolio trade on the Intercontinental Exchange (ICE) Futures Europe exchange, and the fund’s top holding is carbon emissions credit futures contracts in the E.U.

United States Gasoline Fund (UGA)

  • Performance Over One-Year: 87.1%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: N/A
  • Three-Month Average Daily Volume: 72,891
  • Assets Under Management: $88.7 million
  • Inception Date: Feb. 26, 2008
  • Issuer: Concierge Technologies

Like BDRY above, UGA is also structured as a commodity pool. It is designed to track the movements of gasoline prices and offers investors a way to bet on a rise in gasoline prices by investing in listed reformulated blendstock for oxygenate blending (RBOB) futures contracts and other gasoline-related futures. The fund may also invest in forwards and swap contracts.

UGA provides investors with a way to get short-term tactical exposure to a specific segment of the energy market, and it is not likely to appeal to those building a long-term, buy-and-hold portfolio.

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