Unlike money, which countries can print at will, commodities are backed by their fundamentally limited value. While equity markets have done well over the past year, commodities have enjoyed a break-neck bull run due to the increasing adoption of renewable energy, which is very commodities intensive, a gradual global economic recovery pushing the prices of coal/crude oil/natural gas higher, and market volatility increasing interest in gold/silver.
However, of all reasons above, renewable energy is the most exciting one is the impact of renewable energy on the commodities market over the long term. According to estimates, the demand for materials like copper and lithium is set to grow 10x by 2030, which will lead to a gold rush in renewable energy metals.
The Best Commodity ETFs on the TSX
Commodities cannot be held physically by people due to hassles such as safety and illiquidity. The best and most convenient way to invest in commodities is through commodity ETFs. These funds have extremely low management expenses, are incredibly liquid as they are listed on the stock exchange, and are very cheap to invest in as there are no minimums other than the cost of a single unit of the ETF.
Direxion Auspice Broad Commodity Strategy ETF (NYSE: COM)
The Direxion Broad Commodity ETF is the most diversified ETF available to investors in the context of exposure to the commodities space. The ETF has holdings in metals (copper, gold, silver), agriculture (soy, wheat, etc.), and energy (crude oil, natural gas, gasoline). The ETF uses futures contracts to gain exposure to the commodities mentioned above, making its portfolio extremely liquid and cheap to maintain. In addition, the ETF gives investors exposure to clean energy metals like copper and silver while covering gasoline and natural gas.
The ETF has returned about 22% YTD and 8.34% CAGR over the past three years, comfortably beating inflation with low volatility. It has an expense ratio of 0.7%.
Horizon Natural Gas ETF (TSE: HUN)
The Horizon Natural Gas ETF is designed to give investors cheap and hassle-free exposure to growing natural gas adoption in Canada. Demand for natural gas in Canada is very stable and growing due to increasing use in energy plants instead of coal and heating and cooking, thus making it a very safe investment.
Like most commodity ETFs, this one uses rolling futures contracts to maintain exposure to natural gas. However, to minimize hassle and lower costs of rolling over every month, this ETF only buys contracts for the winter months, starting January, when demand is higher and more stable. This timing lowers both costs and volatility.
The Horizon ETF has returned a mammoth 50.5% YTD, 21.52% CAGR over the past three years, and 7.32% CAGR over the past five years. It has an expense ratio of 0.89%.
Horizon Crude Oil ETF (TSE: HUC)
As the name might suggest, the Horizon Crude Oil ETF aims to provide investors exposure to crude oil prices as cheaply and easily as possible. Crude oil is expected to be the dominant source of energy for mobility till at least the end of this decade. Further, the recent economic slump caused by the pandemic is just entering a full-blown recovery.
Like the Horizon Natural Gas ETF, this ETF uses futures to gain exposure but avoids near-month contract roll-over to lower volatility and costs. Instead, the ETF invests in December contracts and rebalances every June.
The Horizon Crude ETF has returned 43% YTD and 5.34% CAGR over the past five years. However, it would be best to consider that long-term returns are tainted because the pandemic pushed oil prices into negative territory for a short period. In addition, this ETF has an expense ratio of 0.88%.
VanEck Rare Earth Strategic Metals ETF (NYSE Arca: REMX)
The VanEck Rare Earth ETF is unique compared to the traditional commodity ETFs; however, it is fascinating due to its prospects over the medium and long term as it is designed to give exposure to exotic metals that have extensive use in the clean energy/mobility space.
This ETF has exposure to companies engaged in the mining of rare earth and exotic metals such as neodymium, copper, cobalt, and lithium, all of which are core to electrification. These companies are scattered around the globe, such as China, Australia, etc.; hence the risk is diversified.
The ETF is volatile due to the nature of the commodities it holds but has generated outstanding returns for investors. It has returned 190% over the past year, 31% CAGR over the past three years, and 23% CAGR over the past five years. In addition, it has an expense ratio of just 0.59%.
United States Copper Fund (NYSE Arca: CPER)
The United States Copper Fund is designed to give investors exposure to copper, which is the bedrock of electrification as it has the highest electrical conductivity of all metals known. The fund uses futures contracts to gain exposure to copper and has an expense ratio of 1.08%.
Copper is one of the safest metals to invest in as it has a great future and the lowest threat of disruption. The fund has returned 54.08% over the past year and 12.62% CAGR over the past five years.
Commodities are a particularly important investment in the context of today’s economic landscape because the crash of 2008-09 along the recent pandemic pushed most major economies in the world into a cycle of continuous money printing to induce economic activity. This money printing is the cause of record-high inflation around the world. Moreover, it has led to a situation where bank rates are severely lagging inflation, meaning investing is more important now than ever.
Canadian Commodities ETF
Commodity markets are older than the stock market, and people have exchanged commodities such as gold, food, and livestock for centuries. Today, commodity markets function as stock exchanges that facilitate the movement and contraction of physical goods.
Investors can participate in commodities and commodity futures trades through Exchange Traded Funds (ETFs) by buying shares in companies that produce commodities. While many investors are reluctant to purchase individual commodities, ETFs make this area accessible to a wide range of investors.
Commodities such as silver and palladium are often seen in times of market uncertainty as safe-havens. Demand for commodities such as copper is rising due to increased manufacturing and construction activities. Commodities are also helpful as a hedge against inflation and can help diversify an investment portfolio away from traditional stocks and bonds.
Many investors have turned to buy special funds that promise exposure to commodities. Exchange-traded funds (ETFs) provide a vehicle to invest in one or more commodities, reducing the risk of investing in a single commodity. The purchase of resources has been made possible by the emergence of ETFs that have enabled quick, cheap and easy exposure.
In his latest white paper, Mr. Straus outlines his case for investing in commodities by linking stocks to commodities. Adding commodities to your portfolio can reduce its overall volatility. Straus said another way to avoid negative returns concerns is to focus on the commodities sector by concentrating on precious metals.
Investors can also look at a broader basket of precious metal commodity ETFs in the US market, such as the Aberdeen Standard Investments Physical Precious Metals Basket ETF GLTR QMER + 0.60 percent, which tracks the spot gold, silver, platinum and palladium prices.
See our article on selecting global ETFs and exchange-traded funds, where we offer basic, low-cost, diversified ETF portfolios with Canadian and international ETFs. We offer P / E and dividend yields from September 23 to 24, 2019. We also provide links to check the latest P / E and P / E dividend yields and ETF prices. Most ETFs focusing on precious metals such as physical gold ETFs (e.g.
A single commodity ETF holds physical commodities such as natural gas, oil, silver or gold in physical stores instead of investing in futures contracts. Investing in commodity companies can be an insufficient proxy for a particular commodity and expose you to the specific risks associated with these companies. Therefore, a single commodity ETF is more efficient to invest in a particular commodity portfolio than to invest directly in commodity companies.
If you want to invest in commodity stocks, ETFs or futures, you need a brokerage account. If you plan to sell your goods in the future, it is up to you to find a buyer and facilitate the transaction. This method is not for first-time investors trying to experience trading in a particular type of commodity.
In the past, Mr. Pickering, who has managed commodity ETFs in Canada, has worked hard to create a general commodity fund for Canadian investors that appeals to those who do not want to own a US-listed fund. Gold is part of the fund, but Mr. Pickering sometimes doesn’t think it’s a big inflation hedge.