The 4 Types of Commodity ETFs and Why You Should Know the Difference | ETF Trends

Are you looking into commodities exchange traded fund (ETF)? Commodity-based ETF investors have a few distinct choices when considering commodity investments.

According to David Nadiq for IndexUniverse, investors who are more inclined to invest in commodity ETFs have a choice in what type of ETF they use to get exposure:

Equities. Equity-based commodity ETFs are funds that hold mining companies and other companies involved in the production of various commodities. Be aware that the performance of these companies are not always correlated to their underlying commodity. In the case of coal, steel and other commodities, sometimes equity-based commodity ETFs are the only way to gain exposure to these assets in an ETF. Long-term capital gains rate on equity-based ETFs is 15%, but be sure to consult your tax professional for further guidance.

  • SPDR S&P Metals & Mining (NYSEArca: XME): up 73.4% year-to-date


Physical. Physical ETFs hold the actual physical commodity. Precious metals ETF holders would own an interest in a fractional amount of the physical commodity. The small investor may consider physical ETFs over holding the physical commodity because of costs associated with storage of the commodity. Potential investors should also note that profits in bullion-based ETFs are taxed at 28%, but consult your tax professional for advice.

  • iShares Silver Trust (NYSEArca: SLV): up 56.1% year-to-date


Futures-based. Most commodities are traded on futures exchanges. A future is a promise to buy, or sell, a commodity for a set price at a set date in the near future. A majority of the future contracts traded on the exchange floor are settled or swapped for cash before the expiration date.