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7 Best Commodity ETFs to Fight Inflation

7 Best Commodity ETFs to Fight Inflation

7 Best Commodity ETFs to Fight Inflation

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Invest in these commodity ETFs to mitigate high inflation.

The U.S. Labor Department’s May CPI report showed that headline inflation data rose 8.3% year-on-year in April 2022. Those numbers, while down slightly from March’s 8.5%, were still higher than economists and markets had forecast. The driving force is a sharp increase in gasoline and food prices for consumers. Investors looking for inflation protection can buy physically-backed or futures-based commodity exchange-traded funds (ETFs) that track the prices of commodities such as precious metals, livestock, oil, gas and grains. During periods of inflation, these ETFs can outperform if the prices of their underlying commodities rise. Here are eight of the best commodity ETFs to buy today.

Invesco DB Commodity Index Tracker Fund (Symbol: DBC)

The best commodity ETF to buy today is DBC, which tracks a diversified basket of commodities. Due to the prohibitive cost of long-term storage of some of these commodities, DBC gains exposure through futures contracts. These are derivatives that allow buyers to set a predetermined price to buy a commodity at a specific time in the future. More than half of the ETFs track the prices of various fuels including New York Harbor ULSD, gasoline, Brent and West Texas Intermediate, with the remainder spread across aluminum, copper, natural gas, gold, wheat, corn, soybeans, and others. There is zinc, sugar and silver. DBC is highly volatile and is generally recommended for advanced investors with a high risk tolerance. The ETF is also a bit pricey, with a high expense ratio of 0.87%.

Invesco Optimum Yield Diversified Commodity Strategy No. K-1 ETF (PDBC)

An alternative to DBC is PDBC. PDBC follows the same indexes as DBC, with one notable exception. Because DBC is a commodity pool, investors need to file K-1 returns during tax season, which can be time-consuming and frustrating. PDBC avoids this by investing in commodities through subsidiaries, which allows ETFs to be structured as open-ended funds. This eliminates the need for a K-1 tax form. Another key difference is that PDBC will receive a higher distribution in the form of capital gains, while DBC will automatically withhold and reinvest. This has no impact on total returns, but may not be as efficient in a non-deferral account. Finally, PDBC has a lower expense ratio of just 0.62%.

Teucrium Wheat Fund (WEAT)

The top commodity ETF WEAT provides pure exposure to the wheat futures contract using a tiered strategy to reduce the impact of contango. Contango occurs when the price of a futures contract is higher than the spot price of the underlying commodity, causing funds to lose money by selling expiring contracts at a lower price and have to buy contracts that expire later at a higher price. WEAT mitigates this risk by spreading out futures contracts over multiple expiry dates, rather than just buying front-month futures.

SPDR Gold Shares (GLD)

As a “hard” commodity with tangible value and use cases in technology, manufacturing and jewelry, gold often soars during times of economic stress and global socio-political instability. While investors can buy and hold physical bullion, there are storage and insurance costs involved. A better way to hold gold in your portfolio is to buy physically backed gold ETFs like GLD. Unlike DBC and PDBC, GLD does not use futures to track the price of gold. The ETF holds the corresponding precious metal deposits in a safe vault, with each GLD share representing a fraction of the rights. GLD is also very liquid, with decent daily trading volume and a strong options chain for investors looking to increase their exposure or hedge their portfolio. The expense ratio for holding an ETF is 0.4%.

SPDR Gold MiniShares (GLDM)

Investors not interested in trading gold options can steer clear of GLD in favor of its cheaper, newer cousin, GLDM. Compared to GLD, GLDM has lower trading volumes, fewer assets under management or AUM, and currently has no options chain. However, the ETF has a much lower price per share and a much lower expense ratio of just 0.1%. This makes GLDM an excellent choice for passive investors looking to build exposure to gold in their portfolio. GLDM tracks the same physical bullion deposits as GLD, which allows its share price to closely track the spot price of gold. As a long-term, low-cost investment, GLDM is one of the cheapest physical gold ETFs on the market today.

Teucrium Corn Fund (CORN)

Corn is one of the most important agricultural commodities on the market and is used worldwide as animal feed and biofuel. Processed corn varieties also play an important role in the production of foods for human consumption, especially starches and sweeteners. When geopolitical crises and recession hit, prices for staples like corn surged as demand recovered and hoarded. Investors looking to add corn exposure to their portfolio can buy corn ETFs. Like WEAT, CORN tracks corn prices using futures contracts spread over various expiration dates while minimizing the impact of contango. However, CORN calculated an expense ratio higher than WEAT at 1.14%.

iShares Silver Trust (SLV)

Silver is an important raw material not only for jewelry but also for various industrial applications. Its high thermal and electrical conductivity make it a popular component in semiconductors and other electronics. Its rarity makes it a reliable store of value like gold, making it a hedge against some recessionary and inflationary periods. Investors looking to add silver exposure to their portfolio without buying and storing physical bullion can buy SLV stock. With over $11 billion in net assets, SLV is the largest physically-backed silver ETF in operation, with over 17,000 tons of silver held in safe vaults. SLV has an expense ratio of 0.5%.

DISCLAIMER

The content presented in this site is not a recommendation, indication and/or investment counseling, being only informative content, being the investor’s sole and exclusive responsibility to make the decision.

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