October 22
Increase Your Exposure And Diversity By Investing in Commodity ETF
Today investor’s exposure towards Commodity trading is greater than ever, thanks to over the years increase in the prices of commodities and also the availability of securities in the market which has made investments easier for common stock traders. Trading in commodity ETF is one of the simplest ways to expose your investments to commodity exchanges as well as have that much needed diversity in your portfolio. Commodity ETFs have pre defined investment in a bunch of commodities where from time to time some commodity investments are removed and some are added as the market situations and opportunities changes.
Commodity ETF can be of various different types however a largest part of ETFs replicate the gains of commodities with the help of investments in commodity futures markets. A great feature of ETF which many of you might be aware about by now which is they can be traded like stock and also unlike mutual funds they can be bought and sold during the market hours. Some ETFs only invest in the commodity derivatives, there are some funds that buy the actual commodity where as there are some that buy stocks of companies that deal in that commodity in some or the other ways. Further, there are funds dealing in multiple commodities which can be a hedging instrument or for the traders looking for diversity in their portfolio.
On a broad scale ETFs can be distinguished into following six classes:
1.) Precious metals
For Example: PowerShares DB Gold Fund ETF (DGL) managed by DB Commodity Services is based on the futures contracts on gold and it tracks overall gold performance.
2.) Natural Gas
For Example: The main goal of this kind of ETF (UNG) tracks changes in the percentage in the NAV which reflects the price of natural gas.
3.) Base metals
For Example: PowerShares DB Base Metals Fund (DBB) based on Optimum Yield Industrial Metals Excess Returns (Index) which includes futures contracts of most liquid and mostly all base metals – aluminum, copper and zinc.
4.) Oil
For Example: PowerShares DB Oil Fund (DBO) again based on Deutsche Bank and this Index is based on futures contracts on Light Sweet Crude Oil (WTI) and it tracks overall Oil performance.
5.) Agricultural commodities
For Example: PowerShares DB Agriculture ETF includes future contracts of widely traded commodities relating to agriculture namely corn, wheat, beans, sugar and wheat.
6.) Other commodity related ETFs: These types of funds invest in multiple commodities as opposed to funds that concentrate on one single commodity.
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