It wasn't too long ago that the average retail investor wouldn't
have thought of investing in commodities. These days, commodity
investing is easier than ever, thanks to the advent of commodity
exchange traded funds (ETFs).
Before ETFs, traders would buy and sell futures contracts on the
underlying commodities or buy and sell stocks of companies that
comments Todd Shriber for Investing Answers
. These seven popular funds are useful, but before buying, you
should understand exactly what you're getting into.
SPDR Gold Shares (NYSEArca:
. GLD is the second-largest ETF in the world, with $50 billion in
assets, and the world's sixth-largest owner of physical gold. Each
share of GLD is backed by physical gold bullion, which makes it an
alternative to actually investing in physical bullions. [
The Case for Investing in Gold ETFs.
iShares Silver Trust (NYSEArca:
. SLV is backed by phyiscal holdings of silver, with $5.5 billion
in assets, and the fund has an expense ratio of 0.5%. Historically,
when gold prices increase, so do silver prices. However, silver has
industrial applications, which makes it less volatile than gold. [
5 Reasons for Silver ETFs' Special Glow.
United States Oil (NYSEArca:
United States Natural Gas Fund (NYSEArca:
. These two funds invest in futures contracts for oil or natural
gas. As futures contracts expire, the funds roll-over holdings by
purchasing new contracts every month. The build of the funds makes
it vulnerable to contango - future prices of the commodity are
higher than today's price, which forces the funds to sell low and
buy high when rolling over. Energy observers are still waiting on
the opposite to occur, or better known as backwardation. Contango
can be mitigated by looking for funds that invest in all 12 months
of future contracts, not just the front month. [
Commodity ETFs: Understanding Contango.
PowerShares DB Agriculture (NYSEArca:
. Agriculture commodities, or known as "softs," offer the potential
for rapid capital appreciation. The fund's provider said it may add
more equities to the ETF's holdings, helping to reduce expenses and
volatility in the future.
ETF Securities Physical Palladium (NYSEArca:
ETFS Physical Platinum (NYSEArca:
. Both funds are physically-backed by their respective precious
metals, and they have expense ratios of 0.6%. The precious metals
have industrial applications, such as the production of catalytic
converters. It should be noted that platinum and palladium prices
are among the most volatile in the metals complex. [
Platinum and Palladium ETFs Wait for a World Cup
For more information on commodities, visit our
Max Chen contributed to this article.