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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.
Commodities ETFs offer a way 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 U.S. stock market in the last year.
- The commodities exchange-traded funds (ETFs) with the best one-year trailing total return are BDRY, GRN, and KRBN.
- The main holdings of the first ETF is dry bulk futures contracts, and the main holdings of the other two funds are carbon emissions credits futures contracts.
There are 52 commodities ETFs that trade in the United States, 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 Dow Jones Commodity Index, have outperformed the U.S. stock market over the past 12 months, with a total return of 33.6% compared to the S&P 500’s total return of 28.9%, as of Dec. 9, 2021. The best-performing commodities ETF for the first quarter (Q4) of 2022, based on performance over the past year, is the Breakwave Dry Bulk Shipping ETF (BDRY).
We examine the top three commodities ETFs below. All numbers are as of Dec. 9, 2021.
- Performance Over One-Year: 304.9%
- Expense Ratio: 3.76%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 364,080
- Assets Under Management: $75.5 million
- Inception Date: March 22, 2018
- Issuer: ETFMG
BDRY is structured as a commodity pool, a private investment structure that combines investor contributions to trade the futures and commodities markets. The ETF provides exposure to the dry bulk shipping industry, a key part of the global commodity market, by tracking the Breakwave Dry Freight Futures Index, which consists of futures contracts on specified indexes that measure rates for shipping dry bulk freight. BDRY 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.
- Performance Over One-Year: 167.4%
- Expense Ratio: 0.75%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 73,285
- Assets Under Management: $140.1 million
- Inception Date: Sept. 10, 2019
- Issuer: Barclays Capital
GRN is an exchange-traded note (ETN) tracking the Barclays Global Carbon II TR USD Index. The index provides exposure to the price of carbon as measured by the return of futures contracts on carbon emissions credits from the European Union (E.U.) Emission Trading Scheme and the Kyoto Protocol’s Clean Development Mechanism. This essentially makes GRN a play on global warming. All of the futures contracts in GRN’s portfolio trade on the Intercontinental Exchange (ICE) Futures Europe exchange, and the fund’s top holding is E.U. carbon emissions credit futures contracts.
- Performance Over One-Year: 120.3%
- Expense Ratio: 0.78%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 616,166
- Assets Under Management: $1.6 billion
- Inception Date: July 30, 2020
- Issuer: CICC
KRBN tracks IHS Markit’s Global Carbon Index, offering coverage of cap-and-trade carbon allowances by tracking the most traded carbon credit futures contracts. The index covers European and North American cap-and-trade programs including European Union Allowances (EUA), California Carbon Allowances (CCA) and the Regional Greenhouse Gas Initiative (RGGI). The fund says it provides “a method of hedging risk and going long the price of carbon while supporting responsible investing.” Like GRN above, KRBN’s portfolio consists of carbon emissions credit futures contracts, with more than half of its holdings also in the E.U.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
