In this article, we discuss 10 best commodity ETFs to buy. If you want to skip our discussion on the commodities market, head directly to 5 Best Commodity ETFs.
Agricultural commodities consist of livestock, grains, oilseeds, sugar, and cocoa, to name some. Ever since the pandemic in 2021, the commodities market was presented with a number of challenges. Disruptions to the labor market and the global supply chain triggered a volatile pricing. As people tried to acclimatize to the lockdowns, consumer behavior changed and shifts were observed in demand. According to the World Bank, the prices for commodities are expected to decline by roughly 21% in 2023 - the sharpest decline since the extreme conditions of the pandemic. According to Euromonitor International, the agricultural commodities can be expected to decrease by 5.6% due to the higher supply. As the supply chain improves, this increase is being spearheaded by the increased production of corn, wheat, soybeans, and palm oil in Brazil, Australia, Canada, Russia, and the United States. In contrast, the price for rice and sugar is expected to increase. This is due to the rising demand for rice and a restrictive market for sugar. Despite the global pressure for a recession, the economy is somewhat stable. Hence, the decrease in fuel prices have made for cheaper inputs for the farming industry. However, the average fertilizer cost is still twice as high as pre-pandemic levels. Given the recessionary pressure and the expectation of costs further increasing, the margins in the agricultural industry are faced with some pressure.
Similar to this, the energy-based commodity prices are also estimated to decrease to be 23% lower than that in 2022. This can be attributed to the improved levels of energy conservation and the favorable weather, which has helped reduce the demand. According to S&P Global, the demand for fossil fuels is expected to increase during the year, which is against the increased legislative efforts to reduce emissions. Mr. Dan Klein, the Head of Energy Pathways, S&P Global Commodity Insights, stated China’s covid policy as the most important factor for the global demand for energy commodities in 2023. He commented:
“As its (China’s) demand softness due to lockdowns in 2022 was a key safety valve for oil, gas, and coal markets, while Europe scrambled to replace Russian energy. With another year of vaccinations and growing frustrations with lockdowns domestically in China, restrictions will likely ease somewhat in 2023 and imports of fossil fuels can be expected to increase again."
As per the S&P Global Commodity Insights Energy Outlook for 2023, the total demand for China’s energy market is set to increase by 3.3 million barrels – this would make up 47% of the global energy demand growth. Just like China, India’s demand for energy will also be crucial for the industry. As tensions continue between Russia and Europe, India is expected to be a key buyer for Russian energy.
Similar to the agricultural and energy sector, the prices for crucial metals have experienced a 17% decline during the first quarter of 2023. Much like the commodity sector as a whole, the pandemic caused major disruptions to the supply chain for precious metals. As people adjusted to an online model to work and study, the demand for precious metals such as lithium increased. To make things worse, mining was halted and the supply lines were stretched thin. Ever since 2021, the industry has been adjusting. During the year, the industry has experienced an improved supply of metals, as shipments for non-ferrous metals increased in 2023. Coupled with a lower than anticipated demand for these metals, the prices have significantly fallen. While the prices have definitely reduced since 2022, the industry has still not reverted back to pre-pandemic levels. The historically high price of metals is a crucial concern for manufacturers, as the cost of production and sourcing raw materials remains staggering. Furthermore, the increased cost of production will continue to adversely affect the purchasing power parity for consumers.
The ETFs featured in this article also enjoy an exposure to the market for gold and silver. According to the London Bullion Market (LBMA), the price for gold is to be affected by the US dollar and federal reserve rates, inflation, and other geopolitical factors. The global economic pressure called central banks to act. Although favorable, these attempts are deemed not enough in dampening the inflationary pressures. Despite the rise in rates, the price for gold rose about 6.53% between January 3 and February 2. In comparison, the US dollar fell by 1.77% during the same period. The USD then rose as Jerome Powell, the Federal Reserve Chair, announced the US interest rates would continue rising. However, the collapse of Silicon Valley Bank and Signature Bank, the bail-out of First Republic Bank, and the distressed sale of Credit Suisse to UBS in Europe resulted in a drop in the US dollar. Following this, on March 24, the price for gold reached £1634.84, the highest it ever has in GBP. In contrast, silver prices dropped during the first quarter of 2023. However, it also experienced a change in the market mood as the price increased by 18.8% during March.
Some of the best commodity stocks to look out for include Freeport-McMoRan Inc. (NYSE:FCX), Newmont Corporation (NYSE:NEM), and Rio Tinto Group (NYSE:RIO). However, we discuss the best commodity ETFs in this article.
Our Methodology
For this article, we have specifically considered ETFs that include natural commodities. These include agricultural commodities, precious metals, and energy-based commodities. Our list focuses on ETFs that have taken up positions in various commodities through futures. Investing in futures is a way for companies to hedge their investment against inflation. In addition to commodities, the majority of these ETFs have also invested in government securities.
We used an ETF screener and filtered out the best performing commodity ETFs based on 5-year share price performance. We have also discussed the top holdings of the ETFs to offer better insight to potential investors. These ETFs have amassed significant gains over the past 5 years. The list is ranked in ascending order of the 5-year share price performance of these commodity ETFs as of October 10, 2023.
10 Best Commodity ETFs
Photo by Francisco Fernandes on Unsplash
Best Commodity ETFs
10. First Trust Global Tactical Commodity Strategy Fund (NASDAQ:FTGC)
5-Year Performance as of October 10: 17.54%
The First Trust Global Tactical Commodity Strategy Fund (NASDAQ:FTGC) is an actively managed ETF which is designed to achieve gains while maintaining a comparatively steady risk level. The ETF was launched in October 2013 to provide investors exposure to commodities. As of October 10, the ETF manages total net assets worth $2.5 billion and features an expense ratio 0.95%. The ETF currently holds positions in a number of commodity futures, including precious metals, agriculture, energy, industrial metals, and livestock.
Some of the top commodity stocks to watch, in addition to ETFs like First Trust Global Tactical Commodity Strategy Fund (NASDAQ:FTGC), include Freeport-McMoRan Inc. (NYSE:FCX), Newmont Corporation (NYSE:NEM), and Rio Tinto Group (NYSE:RIO).
The iShares S&P GSCI Commodity-Indexed Trust (NYSE:GSG) aims to replicate the performance of a fully secured investment in futures contracts linked to S&P GSCI(R) Total Return Index. The index encompasses a broad array of commodity futures. The ETF was launched on July 10, 2006. Apart from commodities in energy, metals, livestock, and agriculture, the ETF also holds a number of treasury instruments. As of October 10, the ETF manages total net assets worth $1 billion while sustaining a sponsor fee of 0.75%.
8. Invesco DB Agriculture Fund (NYSE:DBA)
5-Year Performance as of October 10: 30.39%
The Invesco DB Agriculture Fund (NYSE:DBA) aims to mirror the performance of the DBIQ Diversified Agriculture Index Excess Return. In addition to this, the ETF also earns interest income through US Treasury instruments and income from money market investments. This ETF provides investors an economical means to engage in commodity futures, for some of the most liquid agricultural commodities. Invesco DB Agriculture Fund (NYSE:DBA) is one of the best commodity ETFs to invest in. The ETF was first introduced in January 2007 and maintains an expense ratio of 0.93% as of October 10. Some of the major holdings for the ETF include sugar, cocoa, cattle, and soybeans.
7. Abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free Fund (NYSE:BCD)
5-Year Performance as of October 10: 33.14%
The Abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free Fund (NYSE:BCD) aims to achieve investment goals that align with the performance of the Bloomberg Commodity Index 3 Month Forward Total ReturnSM. The energy sector dominates the holdings for the ETF, while agriculture and precious metals remain significant holdings. The ETF was launched in March 2017 and remains invested in gold, gas, and crude oil futures. As of October 10, the ETF manages total net assets worth $253.22 million and features a total expense ratio of 0.37%. Abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free Fund (NYSE:BCD) is one of the best commodity ETFs to monitor.
6. iShares Silver Trust (NYSE:SLV)
5-Year Performance as of October 10: 44.90%
iShares Silver Trust (NYSE:SLV) aims to replicate the price performance of silver, using LBMA Silver Price as the benchmark. The ETF provides investors an exposure to the price movements of silver bullion, in a cost-effective approach. iShares Silver Trust (NYSE:SLV) was first launched in April 2006, to help investors diversify their portfolio through silver as an alternative investment. As of October 10, the ETF manages total net assets worth $10 billion, while featuring a sponsor fee of 0.50%.
Some of the top commodity stocks to invest in, in addition to ETFs like iShares Silver Trust (NYSE:SLV), include Freeport-McMoRan Inc. (NYSE:FCX), Newmont Corporation (NYSE:NEM), and Rio Tinto Group (NYSE:RIO).
