A lot of investors are hesitant to get into individual commodities, but today's commodities exchange-traded funds (ETFs) make this space accessible to just about every class of investor. Commodities tend to be volatile, and the market in 2018 reflects that. After moving sideways at the start of the year, broad commodities ETFs have seen their prices increase recently, with crude oil prices at or near 3-year highs.
Many investors use commodities as a hedge against inflation. Furthermore, commodities help diversify investment portfolios given their generally negative correlation with other asset classes such as stocks and bonds, and commodities are often seen as a safe haven in times of market uncertainty. (For more, see: Commodities: The Portfolio Hedge.)
If you're looking for commodities exposure but you're not sure where to park your dollars, commodities ETFs provide you with a lot of choices. There are ETFs that track a broad basket of commodities as well as funds that focus on a single type of commodity such as oil or precious metals.
These three commodities ETFs were chosen based on a combination of assets under management and performance. All YTD performance figures reflect the period from Jan. 1, 2018, through September 10. All figures were current as of September 10, 2018.
DBC is the elephant in the commodities room – by far the largest ETF in terms of assets under management. It tracks an index of 14 commodities using futures contracts for exposure. It tackles the weighting problem creatively, capping energy at 60% to allow for more exposure to non-consumables such as gold and silver. The fund's large size also gives it excellent liquidity.
DBC's one-year, three-year and five-year annualized returns of 15.10%, 3.47% and -8.20%, respectively, reflect the volatility in the commodities market. (See also: DBC: PowerShares DB Commodity Tracking ETF.)
- Issuer: iPath
- Average Volume: 3,685
- Net Assets: $55.56 million
- 2018 YTD Return: -0.87%
- Expense Ratio (net): 0.70%
BCM picks futures contracts based on the Barclays Commodities Index, which is actually weighted based on liquidity and capped at 35% for commodities sectors and 20% for commodities groups. For that reason, energy is under-represented and precious metals are over-represented compared with other broad commodities index funds, in which energy can account for 65% or more. As currently constituted, WTI crude and gold are almost equal in terms of percentages in BCM's holdings (16% and 15%, respectively).
One-year, three-year and five-year annualized returns for BCM come in at 6.54%, 2.09% and -6.96%, respectively. (See also: 5 Unique Pure Beta ETNs to Consider.)
- Issuer: First Trust
- Average Volume: 140,039
- Net Assets: $225.45 million
- 2018 YTD Return: -5.61%
- Expense Ratio (net): 0.95%
FTGC is the only actively managed broad commodities fund. It is also structured a bit differently as an open-ended fund under the 1940 Investment Company Act. FTGC gains commodities exposures through its subsidiary in the Cayman Islands, which holds futures contracts and other structured commodities products. It currently holds a basket of around 30 commodities futures, with the top 10 holdings including unusual items such as soybean oil, live cattle and cocoa.
You'll pay a bit more in fees for this actively managed fund, but it's still in line with other specialty ETFs. Despite its unusual structure, the fund is taxed like an equity fund – investors won't receive a K-1 at the end of the year. FTGC's inception date was October 2013. One-year and three-year annualized returns are -2.70% and -4.34%, respectively.