For Long Term Investors: The Cheapest ETF for Every Commodity

By Commodity HQ  OCT 09, 2012 2:45 PM

Low cost exposure to agriculture, energy, metals, and more.


After gathering more than $1 trillion in total assets under management, ETFs have cemented their place in the financial world. Among the universe of nearly 1,500 products, commodity funds have garnered a lot of attention, as these products have democratized an asset class that was once difficult to reach by retail investors. Now, there are a number of exchange-traded options to help you gain exposure to your favorite hard assets, all at a low cost.

Even among ETFs, however, there can be significant differentials in fees. It’s not uncommon for two products with similar portfolios and investment objectives to sport extreme differences in expense ratios.

In other words, don’t assume that all ETFs are cost efficient. Sorting through the exchange-traded options can be a valuable exercise for those looking to cut down on fees. Below, we outline the cheapest ETFs for every major commodity and the results may surprise you.

Note that commodities that have just one ETF are depicted with an asterisk, leaving plenty of room for competition from hopeful issuers.

With plenty of competition in the gold and silver space, it should not come as a major surprise to see both GLD and SLV miss the list, as both IAU and SIVR offer near-identical exposure for lower expenses. The remaining two metals ETFs come from only a short list with little else to choose from, still leaving room for new entrants.

A very clear domination by US Commodity Funds, the issuer behind all of the cheapest energy ETFs. The good news is that there is still plenty of room for newcomers to offer similar funds at lower expenses, as some of the products above are the only ETFs for their respective commodity.

The soft commodities are stuck in a deadlock as far as expenses are concerned. Given that iPath has struggled with its Pure Beta line, it may be the case that it will try slashing expense ratios to gain a leg up on the competition in the near future. Teucrium also holds a monopoly on a number of agricultural products, but with CORN being such a successful product, it is only a matter of time before someone else comes along with a less expensive fund.

Another group of commodities without a lot of products to go around. It simply goes to show you that the commodity ETF space still has a lot of growth potential left and room for plenty of new innovation, especially on the cost front.

Last but not least, the alternative energy world has gotten some fair representation from ETFs. Unfortunately the poor performance of the industry overall has been tough on these funds, as many have begun to wonder whether widespread adoption of these resources will happen in our lifetimes.

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Editor's note: This article by Jared Cummans was originally published on Commodity HQ.
Long IAU.