Commodities are a broad category that covers agricultural products like wheat, corn, and soybeans. It also includes oil and derivative products such as gasoline, natural gas, and diesel fuel.
However, investing in commodities also covers precious metals such as gold and silver as well as base metals like copper and aluminum. And more recently, this sector includes items like lithium that will be needed in many of the emerging sectors of our economy.
Commodities trading is frequently done by trading contracts on the futures market. And it's not for faint-of-heart investors. Prices are volatile and can change quickly due to macroeconomic events.
However, at certain times, particularly in times of high inflation, commodities outperform the broader market. A practical alternative for individual investors looking to profit from commodities is to invest in exchange-traded funds (ETFs). These funds give investors exposure to this sector while reducing the risk that comes from investing in any single commodity.
Here are seven ETFs that you can buy to help build a hedge against inflation.
Quick Links
- SPDR Gold Shares
- iShares Silver Trust
- Aberdeen Standard Physical Platinum Shares ETF
- Invesco DB Commodity Index Tracking Fund
- United States 12 Month Oil Fund
- Teucrium Corn Fund
- Teucrium Wheat Fund
#1 - SPDR Gold Shares (NYSEARCA:GLD)
You don’t need to be a “gold bug” to appreciate the value of having exposure to gold in your portfolio. Many investors choose to buy and store physical gold in the form of bars or coins. But it has its limitations, particularly in terms of liquidity. That’s why it can make sense to invest in the SPDR Gold Shares ETF (NYSEARCA:GLD). This ETF is up 42% in the last five years which is nearly double the increase in the spot price of gold over the same time period. Investors also benefit from a low expense ratio of just 0.40%.
Critics would say that rising interest rates will strengthen the U.S. dollar which historically acts as a headwind for gold prices. However, if investors are looking for an investment that is a proven inflation hedge, having exposure to gold should be part of a sound investment strategy. The smart money seems to agree as institutional buying spiked sharply in the first quarter of 2022.
About SPDR Gold Shares
SPDR Gold Trust (the Trust) is an investment trust. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust's expenses. The Trust's business activity is the investment of gold. The Trust creates and redeems Shares from time to time, but in one or more Baskets (a Basket equals a block of 100,000 Shares).
Read More - Current Price
- $242.10
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#2 - iShares Silver Trust (NYSEARCA:SLV)
If you’re considering investing in precious metals, silver and gold go together like peanut butter and jelly. And some investors prefer silver because they point to its use in a range of applications. And currently, that includes its demand for semiconductors. Like gold, investors can choose to buy silver in its physical form. However, like gold that comes with limitations.
A popular ETF for investors to consider is the iShares Silver Trust (NYSEARCA:SLV). This is the largest physically-backed silver ETF in operation. It currently has just under $12 billion ($11.93 billion) assets under management (AUM). And the only holding of the fund is silver. Over the last five years, the per-share price of the fund is up 22%. The fund has an expense ratio of 0.50%.
About iShares Silver Trust
iShares Silver Trust (the Trust) owns silver transferred to the Trust in exchange for shares issued by the Trust. The Trust's each share represents a fractional undivided beneficial interest in its net assets. The assets of the Trust consist of silver held by the Trust's custodian on behalf of the Trust.
Read More - Current Price
- $26.92
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#3 - Aberdeen Standard Physical Platinum Shares ETF (NYSEARCA:PPLT)
We’ve got an additional precious metals ETF to recommend. The Aberdeen Standard Physical Platinum Shares ETF (NYSEARCA:PPLT) is a way to get exposure to precious metals without investing in gold or silver. Like silver, platinum has applications in many industries. Two such industries that investors should keep in mind are medical equipment and clean energy. For example, platinum-based fuel cells can be a more cost-effective, clean, and reliable alternative to diesel.
But this is a long-term play. The fund is flat for the year and it’s also flat when you widen out to view performance over the last five years. Currently, the fund has approximately $583 million of assets under management with an expense ratio of 0.60%.
About Aberdeen Standard Physical Platinum Shares ETF
The abrdn Physical Platinum Shares ETF (PPLT) is an exchange-traded fund that is based on the Platinum London PM Fix index. The fund tracks the platinum spot price, less trust expenses, using platinum bullion. PPLT was launched on Jan 8, 2010 and is managed by Abrdn.
- Current Price
- $84.92
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - Invesco DB Commodity Index Tracking Fund (NYSEARCA:DBC)
One of the benefits of investing in ETFs is that they can give investors exposure to a variety of components within a sector without giving too much exposure to any one component. That’s the reason to consider the Invesco DB Commodity Index Tracking Fund (NYSEARCA:DBC). This fund tracks a basket of commodities ranging from agricultural products, oil, precious metals, and base metals. The fund has $5 billion of assets under management.
That being said, investors should be aware that the fund does use futures contracts to acquire assets. Futures contracts are derivative investments that allow the buyer to lock in a predetermined price (i.e. a contract) to buy a particular commodity at a specific date in the future. This makes the fund even more volatile than commodities can be. It also carries a relatively high expense ratio of 0.87%.
About Invesco DB Commodity Index Tracking Fund
Deutsche Bank is a leading global investment bank with a strong and profitable private clients franchise. A leader in Germany and Europe, the bank is continuously growing in North America, Asia and key emerging markets. Deutsche Bank offers unparalleled financial services in countries throughout the world.
Read More - Current Price
- $22.02
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#5 - United States 12 Month Oil Fund (NYSEARCA:USL)
In times of high inflation, investors flee to energy stocks. The world needs energy in all its forms and that makes energy stocks a defensive play. That being said, this can be a volatile sector and investors have many ways to get exposure to energy markets. The United States 12 Month Oil Fund (NYSEARCA:USL) is a reasonable way to consider profiting from a commodity that will be in demand even as the nation builds a clean energy infrastructure.
The fund’s goal is to reflect the changes in the price of Brent Crude Oil in percentage terms. The fund is up 61% in 2022 and 168% over the last five years. However, it does have an expense ratio of 0.86% which can be considered a bit high.
About United States 12 Month Oil Fund
The United States 12 Month Oil Fund, LP (USL) is an exchange-traded fund that is based on the 12 Month Light Sweet Crude Oil index. The fund tracks light, sweet crude oil spot prices using an average of the 12 nearest-month NYMEX WTI crude oil futures contracts. USL was launched on Dec 6, 2007 and is managed by US Commodity Funds.
- Current Price
- $36.91
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#6 - Teucrium Corn Fund (NYSEARCA:CORN)
Corn remains one of the agricultural products that is in high demand. In 2020, a record 97 million acres of corn were planted. And with reports of the likelihood of food shortages occurring across the world in 2022, it’s likely there will be a disparity between supply and demand. This will mean that the price of corn is likely to become a profitable trade.
If you’re looking for a way to invest in this commodity without taking on the risk and the guesswork involved with futures contracts, there is the Teucrium Corn Fund (NYSEARCA:CORN). The CORN fund is up 32% in 2022 and is likely to go much higher. The fund has $295 million of assets under management and carries an expense ratio of 1.0%. In six out of the last eight quarters, institutional buying has outweighed institutional selling which suggests that the smart money believes the price of corn is also going higher.
About Teucrium Corn Fund
Teucrium Corn Fund (the Fund) is a commodity pool that is a series of Teucrium Commodity Trust (Trust), a Delaware statutory trust. It will issue common units representing fractional undivided beneficial interests in such Fund, called Shares. The investment objective of the Fund is to have the daily changes in percentage terms of the shares net asset value reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for corn (Corn Futures Contracts) that are traded on the Chicago Board of Trade (CBOT), including the second to expire CBOT Corn Futures Contract, weighted 35%, the third-to-expire CBOT Corn Futures Contract, weighted 30%, and the CBOT Corn Futures Contract, weighted 35%.
Read More - Current Price
- $18.26
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#7 - Teucrium Wheat Fund (NYSEARCA:WEAT)
Ever since the Russian invasion of Ukraine, investors and consumers have been warned about the coming supply-demand imbalance in wheat. But aside from buying futures contracts, it can be difficult for retail investors to have an easy way to invest in wheat.
The Teucrium Wheat Fund (NYSEARCA:WEAT) is a pure-play ETF that gives investors exposure to wheat futures contracts. The fund uses a laddered strategy that weights its holdings across three futures contracts that are tied to the Chicago Board of Trades (CBOT) Futures Exchange. This spreads the volatility and risk in relatively equally weighted contracts. The fund has over $640 million in assets under management.
The ETF is up 49% in 2022 with most of those gains coming after the Russian invasion of Ukraine. However, investors should be advised that the fund carries a hefty expense ratio of 1.0%.
About Teucrium Wheat Fund
Teucrium Wheat Fund (the Fund) is a commodity pool. The Fund is a series of the Teucrium Commodity Trust (Trust). The Fund provides investors unleveraged direct exposure to wheat without the need for a futures account. The investment objective of the Fund is to have the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for wheat (Wheat Futures Contracts) that are traded on the Chicago Board of Trade (CBOT), which includes the second-to-expire CBOT Wheat Futures Contract, weighted 35%; the third-to-expire CBOT Wheat Futures Contract, weighted 30%, and the CBOT Wheat Futures Contract, weighted 35%.
Read More - Current Price
- $4.66
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
An additional benefit to having commodities in your portfolio is that they help diversify your portfolio. Historically commodities have a negative correlation with stocks and bonds. This means when the value of one asset class goes up the other goes down. And at times when inflation is outpacing the return you get from your other investments, commodities serve as a hedge that can boost your total return.
But investing in commodities is not without risk. Commodity prices are subject to sudden, and strong, price movements. And most commodity trading is done by investors who use futures contracts. However, in 2022, individual investors have the option of investing in exchange-traded funds that help take a little of the risk out of investing in commodities.
The seven ETFs listed in this presentation are just the tip of the iceberg. The reality is if a specific commodity interests you, there is most likely an ETF that tracks its performance. This can be a benefit for investors who have specific knowledge in a particular commodity sector.
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