In this article, we discuss 10 best commodity ETFs. If you want to skip our discussion on the commodities industry, head over to 5 Best Commodity ETFs.
Geopolitical tensions, including conflicts in the Middle East and Ukraine, coupled with upcoming elections and regulatory uncertainties in certain regions, are refocusing attention on geopolitical and political risks in commodity markets. According to Fitch Ratings, this volatile environment is expected to maintain price premiums for commodities such as oil, gas, copper, and gold. Global demand growth for commodities may slow in 2024 due to softer economic growth globally and China's GDP forecast of less than 5%, particularly as it addresses challenges in its property market. The market balance will depend on the supply response, including production interruptions.
In 2021 and 2022, commodities experienced strong performance driven by rising inflation, with the Bloomberg Commodity Index returning 27.1% and 16.1%, respectively. However, 2023 marked the first negative performance for the Bloomberg Commodity Index in three years, with a return of –7.9%, attributed to cooling inflation and slowing economic growth. For 2024, Bloomberg outlined six key themes for commodities. Firstly, economic conditions in China and the emergence of India as a major importer will influence global trade balances. Secondly, geopolitical conflicts and global tensions are expected to persist, impacting commodity prices due to rapid market reactions. Thirdly, the energy transition toward electrification is anticipated to gain momentum. Additionally, adverse weather events may affect crop production and supply chain logistics. The direction of inflation, central bank policies, and the US dollar will also influence commodities prices. Lastly, commodities futures curve structures will test the bullish arguments for the commodity supercycle thesis depending on their direction and shape.
In 2024, BHP Group Limited (NYSE:BHP) revised its short-term supply-demand outlook for multiple commodities. Refined copper is now expected to be in deficit, with a tight situation in copper concentrate due to solid Chinese demand, reduced Western influence, operational issues like the closure of Cobre Panama, and new Chinese smelting capacity. Total nickel units are projected to see another surplus, though smaller than in 2023, with reduced demand drag, stability in battery supply chains, and curtailments in Sino-Indonesian facilities. The iron ore market is anticipated to remain broadly balanced, subject to uncertainties, including Chinese regulatory actions. Metallurgical coal markets tightened in late 2023 but are expected to be balanced in 2024 with improved supply and demand beyond India and China. Looking ahead, BHP Group Limited (NYSE:BHP) sees the need for additional supply across its sectors, following adjustments due to COVID-19, the Ukraine conflict, and global inflation. Geologically higher-cost production may be necessary for growth commodities in the coming decade, influenced by factors like resource nationalism and carbon pricing. Population growth, urbanization, and GDP expansion are expected to drive increased resource demand through the 2020s and beyond.
In January 2024, HSBC warned of a "super squeeze" in global commodity markets, driven by supply disruptions and underinvestment, with geopolitical and climate risks exacerbating the situation. Chief economist Paul Bloxham told CNBC that this "super squeeze" leads to higher prices due to supply constraints rather than robust demand growth, which is less positive. Factors contributing to the squeeze include political uncertainties, climate change impacts on supply chains, and insufficient investment in green energy transition minerals such as copper and nickel. Geopolitical risks, such as conflicts in Gaza and Ukraine, are disrupting global trade, while climate change is also impacting commodity supply, particularly in agriculture. The pursuit of a net-zero carbon future is increasing demand for energy transition metals, yet investments in these critical minerals are lacking, resulting in a tighter supply. The Energy Transitions Commission warns of potential shortages in metals like graphite, cobalt, copper, nickel, and lithium as energy transition efforts intensify. At the recent COP28 climate change conference, over 60 countries supported a plan to triple global renewable energy capacity by 2030, further driving demand for transition metals. Bloxham also suggested that technological advancements could alleviate the squeeze by making it easier to extract metals used in batteries. While it's uncertain how long the squeeze will last, a deeper global economic downturn could potentially ease commodity prices. Analysts anticipate the most upside in metals, particularly clean energy metals like copper and nickel, as well as iron ore due to falling inventory levels and limited capacity expansion investments.
JPMorgan identifies gold as its top choice in commodities markets, with the potential for prices to reach $2,500 per ounce this year, according to Natasha Kaneva, the bank’s global head of commodities research. Kaneva mentioned in a Bloomberg TV interview that hitting this target is plausible, especially after gold reached an all-time high of $2,195.15 recently. She emphasized that market sentiment tends to become overly optimistic. Achieving this price target hinges on several factors, including continued moderation in inflation and job numbers, along with confirmation of the Federal Reserve's commitment to monetary easing. The Fed's anticipated shift towards looser monetary policy is anticipated to increase gold's attractiveness relative to yield-bearing assets like bonds.
According to a McKinsey report, the commodity trading industry has experienced significant growth over the past five years, with prospects appearing favorable for the future. A transition towards clean energy is underway, impacting global food, energy, and materials systems and increasing structural volatility in commodity markets. The value pools in commodity trading nearly doubled from $27 billion in 2018 to an estimated $52 billion of EBIT in 2021, largely driven by increases in oil, power, and gas trading. Despite this growth, challenges such as inconsistent incentives, bottlenecks in the value chain, and geopolitical turbulence have complicated the supply and demand outlook. Insufficient investments in the energy transition may lead to supply imbalances, particularly for key materials like lithium and nickel by 2030. Market volatility has increased due to factors such as COVID-19, severe weather, geopolitical events, and macroeconomic uncertainty. This volatility affects not only the energy sector but also agricultural goods and metals, disrupting production economics and leading to shutdowns. Flexible capacity to respond to changing market conditions will become more critical, with significant economic value potential in optimizing flexible assets. Estimating the value of flexibility is challenging, particularly considering operational, regulatory, and environmental constraints. Additionally, the energy transition has priced environmental impact into the supply curve, affecting market volatility and cross-commodity relationships.
Overall, while the commodity trading industry faces uncertainties, it also presents opportunities for those able to navigate the evolving landscape effectively. Against this dynamic market landscape, some of the best commodity ETFs to invest in include Global X Uranium ETF (NYSE:URA), SPDR Gold Shares (NYSE:GLD), and iShares Silver Trust (NYSE:SLV).
Our Methodology
We curated our list of the best commodity ETFs by choosing consensus picks from multiple credible websites. We have mentioned the 5-year share price performance of each ETF as of March 14, 2024, ranking the list in ascending order of the share price. We have also discussed the top holdings of the ETFs to offer better insight to potential investors.
Photo by Francisco Fernandes on Unsplash
10. First Trust Global Tactical Commodity Strategy Fund (NASDAQ:FTGC)
5-year Share Price Performance as of March 14: 25.68%
First Trust Global Tactical Commodity Strategy Fund (NASDAQ:FTGC) is an actively managed ETF launched on October 22, 2013. It aims to provide investors with commodity exposure while seeking total return and maintaining a relatively stable risk profile. With an expense ratio of 0.95% and net assets totaling $2.26 billion, First Trust Global Tactical Commodity Strategy Fund (NASDAQ:FTGC) offers a 30-day SEC yield of 3.02% and a 12-month distribution rate of 3.25% as of February 29, 2024. The fund invests in energy, agricultural, precious metals, industrial metals, and livestock futures. First Trust Global Tactical Commodity Strategy Fund (NASDAQ:FTGC) ranks 10th on our list of the best commodity ETFs.
Like Global X Uranium ETF (NYSE:URA), SPDR Gold Shares (NYSE:GLD), and iShares Silver Trust (NYSE:SLV), First Trust Global Tactical Commodity Strategy Fund (NASDAQ:FTGC) is one of the best commodity ETFs to invest in.
9. abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (NYSE:BCD)
5-year Share Price Performance as of March 14: 26.58%
abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (NYSE:BCD), established on March 30, 2017, aims to closely track the performance of the Bloomberg Commodity Index 3 Month Forward Total Return, before fees and expenses. As of March 13, 2024, the ETF has a total expense ratio of 0.37% and assets under management amounting to $203.16 million. abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (NYSE:BCD) offers dividends annually and invests in energy, agricultural, precious metals, industrial metals, and livestock futures. It is one of the best commodity ETFs to monitor.
8. iShares S&P GSCI Commodity-Indexed Trust (NYSE:GSG)
5-year Share Price Performance as of March 14: 36.83%
iShares S&P GSCI Commodity-Indexed Trust (NYSE:GSG), established on July 10, 2006, aims to track the performance of the S&P GSCI Total Return Index by investing in fully collateralized futures contracts. This index comprises a diversified group of commodities futures, offering exposure to energy, industrial and precious metals, agricultural, and livestock markets. As of March 14, 2024, iShares S&P GSCI Commodity-Indexed Trust (NYSE:GSG) has net assets totaling $1 billion and charges a sponsor fee of 0.75%. iShares S&P GSCI Commodity-Indexed Trust (NYSE:GSG) is one of the best commodity ETFs to invest in.
7. Invesco DB Agriculture Fund (NYSE:DBA)
5-year Share Price Performance as of March 14: 38.49%
Invesco DB Agriculture Fund (NYSE:DBA), established on January 5, 2007, aims to mirror the performance of the DBIQ Diversified Agriculture Index Excess Return, adjusted for interest income from US Treasury securities and money market income, minus expenses. It offers investors a cost-effective and convenient means to invest in commodity futures, particularly focusing on agricultural commodities. As of March 14, 2024, Invesco DB Agriculture Fund (NYSE:DBA)’s expense ratio stands at 0.93%. It is one of the best commodity ETFs to buy.
6. Invesco DB Commodity Index Tracking Fund (NYSE:DBC)
5-year Share Price Performance as of March 14: 42.40%
Invesco DB Commodity Index Tracking Fund (NYSE:DBC) aims to replicate the performance of the DBIQ Optimum Yield Diversified Commodity Index Excess Return, adjusted for interest income from US Treasury securities and money market income, deducting expenses. The index is rule-based and comprises futures contracts on 14 highly traded and significant physical commodities globally. The ETF was established on February 3, 2006 and its net expense ratio as of March 14, 2024 came in at 0.87%. Invesco DB Commodity Index Tracking Fund (NYSE:DBC) is one of the best commodity ETFs to buy, ranking 6th on our list.
In addition to Global X Uranium ETF (NYSE:URA), SPDR Gold Shares (NYSE:GLD), and iShares Silver Trust (NYSE:SLV), Invesco DB Commodity Index Tracking Fund (NYSE:DBC) is one of the best commodity ETFs.
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Disclosure: None.10 Best Commodity ETFsis originally published on Insider Monkey.
