The exchange traded fund (ETF) world and the mutual fund industry are competing for investors left and right, and the commodity sector is no exception. The choice for exposure is now readily available in both forms. But which is superior?
One of the questions it comes down to is whether you prefer active or passive management. The differences between mutual funds and ETFs still exist when considering funds that cover the commodities space. (Why mutual funds want in on ETFs).
Overall, passive ETFs cost less than active mutual funds, on average. ETFs also trade all day on an exchange like a stock; mutual funds trade just once. (What will it take for ETFs to overtake mutual funds?)
Don Dion for TheStreet outlines a few of the differences:
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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