Using ETFs To Invest In Commodities

Traders in the investment community use commodities as protection from inflation. There are several different ways to get commodity exposure. Unlike stocks and bonds though, commodities don’t produce income or have a stake in future profits of a business. They are worth what other investors are willing to pay for them. And long-term returns on commodities have not been outstanding.

According to Morningstar, investing in commodities has seen the best results when the investor is limited and diversified. Specifically among energy, agricultural, and industrial and precious metals.

While you could physically buy gold bars or barrels of oil and keep them in your garage, this is not a practical solution. You have to worry about insurance and storage, and some soft commodities like corn aren’t going to hold up too well over the years. For many decades, these barriers prevented the average trader from investing in commodities, but now exchange-traded funds have now made it possible for individuals to gain direct exposure.

Morningstar has an interesting ETF scanner that will help you find ETFs for various classes of commodities. For example, if you were looking for gold exposure, then, using the screener, you would find the ETF, SPDR Gold Shares GLD, which buys gold bars for every share issued, and then store them in vaults in London.

ETF Screener

Here is a list of some of the more popular commodity ETFs.

• PowerShares DB Oil (DBO)
• U.S. Oil (USO)
• iShares Silver Trust (SLV)
• iPath Dow Jones AIG Commodity Index (DJP)
• PowerShares DB Agriculture Fund (DBA)
• PowerShares DB Energy Fund (DBE)

Essentially using an ETF screener such as the one at Morningstar will not only allow exposure to commodities, but also the ability to properly invest in it without having to actually store a tangible item.