Commodities ETF - The Case For Investing in a Commodities ETF
Exchange Traded Funds, commonly known as ETF's, have taken center stage in the financial arena for the past few years.
ETFs give investors a chance to diversify their portfolios with less volatility within a certain market.
Commodities ETFs are exactly what the same suggests, a fund populated with components from the commodities sector.
An important note is that commodities EFFs track the actual producers or distributors of commodities rather than commodity ETFs, which track the actual underlying commodity, which firms may hold the actual commodity in storage or via futures contracts.
Beyond that, there's a variety of choices.
Precious metals, for example, might have their own ETF, such as Power Shares' Precious Metals ETF (DBP).
Or investors might want to get more specific and find an ETF that specializes in gold, silver, or platinum.
On the other end of the spectrum, Goldman Sachs' Commodity Index (GSCI) tracks 24 commodities across a variety of sectors.
The strategy on ETFs can vary, too- one ETF in gold might have platforms from a long only strategy to a double short strategy.
Agricultural commodities, industrial commodities, and oil are other popular sectors that have commodity ETFs established.
ETFs are a separate asset class from regular stocks and bonds, so including them in your portfolio allows for diversification.
In addition, if an investor feels strongly that, say, energy costs will rise this quarter, purchasing oil ETF provides a way to capture a gain on that assumption.
It's important to investigate the tax implications of the ETF you choose, as well as conduct a thorough historical analysis of prices for the specific commodity.
Owning a commodities ETF is a pure lesson in supply and demand; a bet on whether or not an investor thinks a commodity will be more or less profitable in a given amount of time.
And commodities ETFs can prove to be volatile, given the sharp flux a commodity can experience in value at a moment's notice.
That being said, investors can capture some great returns, especially in sectors where there's a good chance the commodity will be in demand for the long term.
Some investors also use ETFs to hedge against other investments or inflation; iShares' GLD, a popular gold ETF, is often used to combat the declining value of the dollar in a portfolio.
Commodities ETFs also allow investors to get broad exposure to a commodities market in their portfolio without physically purchasing the commodity (previously, this was how it would have worked).
While not for everyone, for those looking to add a new asset class and element of diversification to their portfolios, Commodities ETFs can be a great fit.
ETFs give investors a chance to diversify their portfolios with less volatility within a certain market.
Commodities ETFs are exactly what the same suggests, a fund populated with components from the commodities sector.
An important note is that commodities EFFs track the actual producers or distributors of commodities rather than commodity ETFs, which track the actual underlying commodity, which firms may hold the actual commodity in storage or via futures contracts.
Beyond that, there's a variety of choices.
Precious metals, for example, might have their own ETF, such as Power Shares' Precious Metals ETF (DBP).
Or investors might want to get more specific and find an ETF that specializes in gold, silver, or platinum.
On the other end of the spectrum, Goldman Sachs' Commodity Index (GSCI) tracks 24 commodities across a variety of sectors.
The strategy on ETFs can vary, too- one ETF in gold might have platforms from a long only strategy to a double short strategy.
Agricultural commodities, industrial commodities, and oil are other popular sectors that have commodity ETFs established.
ETFs are a separate asset class from regular stocks and bonds, so including them in your portfolio allows for diversification.
In addition, if an investor feels strongly that, say, energy costs will rise this quarter, purchasing oil ETF provides a way to capture a gain on that assumption.
It's important to investigate the tax implications of the ETF you choose, as well as conduct a thorough historical analysis of prices for the specific commodity.
Owning a commodities ETF is a pure lesson in supply and demand; a bet on whether or not an investor thinks a commodity will be more or less profitable in a given amount of time.
And commodities ETFs can prove to be volatile, given the sharp flux a commodity can experience in value at a moment's notice.
That being said, investors can capture some great returns, especially in sectors where there's a good chance the commodity will be in demand for the long term.
Some investors also use ETFs to hedge against other investments or inflation; iShares' GLD, a popular gold ETF, is often used to combat the declining value of the dollar in a portfolio.
Commodities ETFs also allow investors to get broad exposure to a commodities market in their portfolio without physically purchasing the commodity (previously, this was how it would have worked).
While not for everyone, for those looking to add a new asset class and element of diversification to their portfolios, Commodities ETFs can be a great fit.
