Commodities are the raw materials and physical resources that support most of the economic activity. Commodity ETFs allow you to profit from changes in the price of a single commodity or a group of commodities in a single ETF trade.

Commodities vs. Equities or Bonds

Commodity ETFs are useful instruments for investors since buying and holding a single commodity, such as oil or copper, would be physically unfeasible for most. Commodities are different from equities or bonds - they could provide crucial diversification to a portfolio as well as a potential source of growth. For example, bonds have negative correlation with inflation, and most commodity indexes have a positive correlation with inflation. Storable commodities such as energy or industrial metals and unexpected changes in inflation are directly related to the level of economic activity. As a result, these commodities are positively correlated with unexpected fluctuations in inflation, making commodity ETFs a possible inflation hedge for investors.

Common Commodity ETF examples include:

Gold ETFs

Gold ETFs allow you to profit from price fluctuations in gold without having to store it yourself.

Base Metals ETFs

Base Metals ETFs allow you to invest in industrial metals such as copper, zinc, steel, or aluminum.

Energy ETFs

Energy ETFs allow you to invest in oil, natural gas, electricity, and other sources of energy.

Agriculture ETFs

Agriculture ETFs are exchange-traded funds that invest in agricultural commodities such as wheat, corn, soya, and other foods, as well as timber and cotton.

Want to know more? Take a look at the Canadian-listed Commodity ETFs available for trading.

*This article was written in collaboration with Trackinsight.