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. Thus, these ETFs offer a vehicle 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 broader market in the last year.
  • The ETFs with the best 1-year trailing total return are BDRY, UGA, and BNO.
  • The main holdings of these ETFs are dry bulk futures contracts, gasoline futures contracts, and crude oil futures contracts.

In total, there are 49 commodities ETFs that trade in the U.S., 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 dramatically outperformed the broader market with a total return of 92.7% over the past 12 months compared to the S&P 500's total return of 49.0%, as of May 4, 2021. The best-performing commodities ETF for Q3 2021, based on performance over the past year, is the Breakwave Dry Bulk Shipping ETF (BDRY). We examine the top 3 best commodities ETFs below. All numbers below are as of May 5, 2021.

Breakwave Dry Bulk Shipping ETF (BDRY)

  • Performance over 1-Year: 413.9%
  • Expense Ratio: 3.32%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 312,424
  • Assets Under Management: $87.3 million
  • Inception Date: March 22, 2018
  • Issuer: ETF Managers Group

BDRY is structured as a commodity pool, combining investors' assets in order to trade the futures and commodities markets. It tracks the Breakwave Dry Freight Futures Index, an index consisting of futures contracts on specified indexes that measure rates for shipping dry bulk freight. The ETF provides exposure to the dry bulk shipping industry, which plays a key role in the global commodity market. It 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.

United States Gasoline Fund (UGA)

  • Performance over 1-Year: 155.6%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 114,398
  • Assets Under Management: $108.1 million
  • Inception Date: Feb. 27, 2008
  • Issuer: USCF

UGA is also structured as a commodity pool. It is designed to track the movements of gasoline prices. The ETF offers investors a way to bet on a rise in gasoline prices by investing in futures contracts on reformulated gasoline blendstock for oxygen blending (RBOB) and other gasoline-related futures. The fund may also invest in forwards and swap contracts. It provides investors with a way to get short-term tactical exposure to a specific segment of the energy market, and is not likely to appeal to those building a long-term, buy-and-hold portfolio.

United States Brent Oil Fund (BNO)

  • Performance over 1-Year: 138.1%
  • Expense Ratio: 0.90%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 1,121,939
  • Assets Under Management: $317.0 million
  • Inception Date: June 2, 2010
  • Issuer: USCF

BNO, like the other two funds above, is structured as a commodity pool. It is designed to track the daily movements of the spot price of Brent crude oil, one of two main benchmarks for pricing crude oil; the other main benchmark is West Texas Intermediate (WTI). The ETF provides exposure to oil prices by investing in crude oil futures contracts and other oil-related futures. The fund may also invest in forwards and swap contracts.

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