Commodity ETF is Exchange-traded funds that spend in physical commodities such as agricultural goods, natural resources and precious metals. A commodity ETF may be focused on one commodity and hold it in physical storage space or may spend in futures contracts. Other commodity ETFs look to follow the performance of a commodity index that includes dozens of individual commodities through a combination of physical storage space and derivatives positions.
Because many commodity ETFs apply leverage through the purchase of derivative contracts, they may have great portions of uninvested cash, which is used to buy Treasury securities or other nearly risk-free assets.
Commodity funds often make their own benchmark indexes that may contain only agricultural products, natural resources or metals. As such, there is frequently tracking error around broader commodity indexes like the Dow Jones AIG Commodity Index. Still so, any commodity ETF should be passively invested once the underlying index methodology is in position.
Commodity ETFs have soared in popularity since they offer investors exposure to various commodities without them having to find out how to buy futures and/or other derivative products.
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