What Is The Best REIT ETF For Europeans (UCITS)?
We show you the REIT ETF that you can buy in Europe which is also a UCITs fund.
There are a lot of commodity ETFs. We show you the best commodity ETFs and show you the 6 important requirements for picking a good commodity ETF.
We have thoroughly researched 24 commodity ETFs and found what we consider the best one suited for most people.
So what is the best commodity ETF?
The best commodity ETF for most people is: iShares GSCI Commodity Dynamic Roll Strategy ETF. Symbol: COMT
There are other commodity ETFs available, but there is really only a handful that is worth considering.
When you pick a good commodity ETF you need to look at 6 things:
When you compare the six requirements to each other the most important thing to focus on is the expense ratio, as that is the most reliable indicator of how well the ETF will perform in the future.
The iShares GSCI Commodity Dynamic Roll Strategy ETF fulfills all of the above requirements. It is cheaper than most other commodity ETFs and tracks a well regarded broad commodity index with little tracking error.
It is highly liquid with a large AUM.
Here is the historical return of the commodity asset class.
Portfolio data was last updated on 1st of June 2023, 06:35 ET
|Time Period||Commodities return (%)|
|CAGR since 1989||1.92|
|CAGR 10 years||-4.3|
|CAGR 5 years||5.33|
|CAGR 3 years||9.22|
Here is how you read the table.
CAGR stands for Compound Annual Growth Rate. It is the rate of the return with included interest on interest. It includes reinvestment of dividends.
CAGR Since 1989 is the return since 1989. This is the year which we have chosen, as we have had reliable data for most asset classes since 1989.
CAGR 10 years is the return for the past 10 years, not including the current year.
CAGR 5 years is the return for the past 5 years, not including the current year.
CAGR 3 years is the return for the past 3 years, not including the current year.
Last year is the return for the asset class last year.
Return YTD is the Year To Date return for the asset class.
Below you can see the returns of the best portfolios that we have benchmarked.
|Name||See Portfolio||Year to date||Return in 2022||10 year return||CAGR since 1989 (%)||Draw Down|
Commodities are raw materials. Commodities are the basic building blocks that are used in manufacturing and production for all other industries.
At the most basic level commodities include oil-related products, livestock, basic metals like lead, precious metals like gold, and agricultural produce.
Commodities as an asset class group many commodities together to create a pool, so that when you buy a commodity ETF you are exposed to many different commodities. This is what you want.
The Goldman Sachs Commodity Index (GSCI) is a widely used index. It includes exposure to 24 different commodities.
Commodities are most often traded as futures. A future is a contract to buy a certain commodity in the future at a predetermined price.
There are commodity ETFs that are backed by physical materials. These include gold ETFs.
Here are the holdings of the Goldman Sachs Commodity Index (GSCI) as of 2020. The DB Commodity Index is also a popular index that holds slightly fewer commodities.
|Commodity Name||Weight in index|
|WTI Crude Oil||25.31%|
|Brent Crude Oil||18.41%|
Constituents and weightings of the GSCI Commodity index
When you buy the iShares GSCI Commodity Dynamic Roll Strategy ETF you become the owner of a broad basket of commodities.
Over 60% of the GSCI Commodity consists of energy-related products. This is followed by industrial metals at 10.6%, precious metals at 4.5%, agricultural products at 15.8%, and livestock at 7.25%
There are many commodity ETFs. In addition to the requirements listed above, you need to keep a keen eye on the index that the ETF is tracking.
In the table below we have listed what we consider some good alternatives to iShares GSCI Commodity Dynamic Roll Strategy ETF.
When you select an ETF to cover the commodity asset class you can clearly see which style the ETF uses by the name of the ETF.
Here are two examples: • iShares GSCI Commodity Dynamic Roll Strategy ETF commodities ETF • Invesco DB Commodity Index Tracking Fund
As you can see the ETFs clearly state the investing strategy of the ETF. In this case, it is commodities that the ETF is buying.
In addition to this, you need to examine the index that the ETF is tracking. Most index providers disclose their indexing methodology on a general level and even on a practical specific level for particular assets classes.
The large index providers have money on the line in providing the best indices for any one asset class. This means that we can typically rest assured that their methodology is far superior to any second-guessing that we as private investors may come up with.
For commodities, there are many different ways to construct an ETF. In the past 5 – 10 years we have seen many new commodity ETFs being launched with various ways of constructing an index.
One of the largest headwinds to a commodity ETF is the use of futures, swaps, or options to gain exposure to a commodity. These are called derivative products because their prices are derived from another asset. They need to be renewed regularly (rolled over) which costs money.
In addition to this, commodities can also be taxed differently than equities or bonds.
Commodities experience some wild boom and bust cycles.
This is because at the start of a boom cycle mining producers ramp up their production to meet the production requirements of produces further down the value chain. Commodity prices are usually increasing in price at this stage.
When we reach the top and start of the decline of the economic cycle the commodity producers are at full capacity and many are expanding their production capabilities to meet demand, but that’s exactly when commodity prices will begin to stagnate.
As the economic cycle continues its downward trend demand weakens for commodities and prices fall even further. At this stage, commodity producers scale back their production levels but nowhere near fast enough to prevent the markets to be oversaturated with commodities. Commodity prices plummet marking the start of the bust cycle.
If you can catch the commodities asset class at the right time you stand to increase your wealth significantly.
We track 67 asset classes with data going back to 1989. Commodities have been the worst-performing asset class since 1989. This is important to have in mind when constructing your portfolio.
The best portfolios that we have benchmarked exclude commodities entirely from their selection.
No, based on our data of 67 asset classes going back to 1989 commodities as an asset class has not been a good hedge against inflation.
It has performed significantly worse than other asset classes.
We have data going further back to 1970 when the GSG commodity index was established. From 1970 to 2021 have gained some 5% compound annual growth rate versus equities’ 10.4% compound annual growth rate.
A high-performing portfolio is constructed by combining different asset classes. If you just want the market return you should buy one ETF (VTI). You don’t need anything else.
If you want a shot at outperforming the market you need to apply the following recipe to your investing strategy.
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If you have already committed to a portfolio then maybe you need help maintaining the portfolio. In this case you will find our rebalance worksheet useful.
Rebalancing your portfolio lowers your risk and may provide higher returns in the long run. It is completely FREE.
You can find the rebalance worksheet in our article Here Is The Most Easy To Use Portfolio Rebalance Tool.
**What is a good gold ETF? **The best gold ETF is iShares Gold Trust (IAU). It buys and stores physical gold in vaults around the world.
**What is the best ETF that tracks oil? **The best ETF that tracks the price of oil is the United States Oil Fund LP (USO). It buys short-term NYMEX futures contracts on WTI crude oil.