Equities-based funds: These ETFs and mutual funds track the stocks of commodity producers. Rather than tracking the physical commodities themselves, these funds track companies that are involved in the commodities business. Basically, with an ETF the fees are lower, there’s freedom of intraday trading and the ease of knowing the holdings at all times. While some ETFs and mutual funds may share the same components, they differ in fees, size and track record.
Futures-based funds: ETFs and mutual funds that hold futures are a more pure play on commodities than their equity-based brethren. They also provide investors exposure to the prices of energy, livestock, agricultural and metals futures. The limitations imposed by the Commodity Futures Trading Commission (CFTC) is expected to set limits on the number of futures contracts that both mutual funds and ETFs can hold. Major changes in these funds could potentially result in higher fees, which are ultimately passed down to shareholders.
The cost-effective structure of ETFs has helped to make these products affordable competitors in the commodity space. Also, ETFs have given traders more adaptability because of their liquidity and tradability.
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