Exchange-Traded Funds: an Overview

A commodity ETF is one type of exchange-traded fund allocated intangible commodities such as agricultural products, natural resources, and high-valued metals. Included in the commodity etf list are popular goods such as silver, gold, oil, and crude products.  Commodity index ETFs are good investment means for investors who might want to minimize financial risks or simply acquire an understanding of commodities. In line with this, its fundamental function is to observe the movement and track the performance of commodity indices. Such refers to a collection of multiple commodities made singular through physical storage and derivatives position.

Commodity Exchange-Trade Funds’ Functions

ETF is commonly composed of public equities linked to financial variables, including the economy, index, and sector. It usually is a settlement of securities bound by a singular portfolio. Compared to the usual securities which focus on stocks, commodity ETFs are a combination of contracts sensitive enough to trace the performance of a commodity it is bound with. 

Note that this is usually applicable to a specific commodity or for futures contracts. What makes ETF interesting is it gives investors the opportunity to own contracts linked to a commodity. This means that investors do not possess an actual asset but a contract of particular goods. Commodity ETFs’ utilization of derivatives may increase the volume of cash. Such is essential as this can be used to buy Treasury securities or other safe-haven assets.  

A specific commodity ETF creates its personal benchmark indexes exclusive for tangible products. As this is the case, it is highly susceptible to tracking malfunctions in larger commodity indexes such as the Bloomberg commodity index. Such a structure demands commodity ETF be allocated. One example of this is the vanguard commodity ETF, which tracks the movement of a benchmark index related to raw materials. Commodity ETF vanguard also includes companies that process and manufacture raw resources.  This came to be a profitable investment since it does not require investors to have prior knowledge about futures and derivatives. 

Example of Commodity ETF

ETFs track a plethora of commodities ranging from metals, gas, and agricultural products. As this involves wide options of commodities, investors must carefully assess as to which commodity they want to open a contract on. Included in the list of the best commodity ETFs is the S&P GSCI or more commonly known as Goldman Sachs Commodity Index, exclusive for traders and investors under Chicago Mercantile Exchange. This ETF is broad enough to encompass a large group of commodities and their performances. 

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Note that one of the most profitable ETFs up to date are high-valued metals such as gold and silver. Gold is filed under SPDR, while silver is tracked by iShares commodity ETF. These are viable options since linked commodities have lasting permanence and do not go obsolete. 

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Crude products are also a favorable commodity ETF. Though this type of good cannot be hoarded, ETFs of such allows investors to possess futures contracts.  The most popular ETF linked to crude is the SPDR S&P Oil and Gas Exploration and Production ETF, composed of various crude-manufacturing giants. 

Read more:

How to trade ETF — Guide for beginners 

What are international ETFs and how it works 

What are Sector ETFs and how it works