Commodity ETFs cover the entire commodity market
Exchange-traded funds that invest in physical commodities such as natural resources, agricultural commodities and precious metals. Commodity ETFs can fixate on a single commodity and grab it in physical storage or can invest in futures contracts. Alternative commodity ETFs look to track the performance of a commodity index that includes dozens of individual commodities through a combination of physical storage and derivative positions. Because many commodity ETFs use negotiation through the purchase of derivative contracts, ETFs can hold large portions of uninvested funds, which are used to purchase government securities or other nearly risk-free assets.
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Commodity ETFs often design their individual benchmark indices which may contain only agricultural products, metals or natural resources. To that extent, there are frequent tracking errors around broader commodity indices such as the Dow Jones AIG Commodity Index. Despite this, all commodity ETFs should be passively invested when the underlying index methodology is stationary. Commodity ETFs have grown in popularity due to the fact that they give investors exposure to various commodities without the need to learn how to buy other derivative products on futures.
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