Commodity ETFs are assets that you can trade, just like stocks, that give you exposure to movements in the prices of commodities such as gold, silver, livestock, coffee, sugar etc. As you can imagine, investing in these assets directly is a challenge for retail investors as they would need to take delivery, maintain inventory etc. ETFs provide a cost effective and easy access to trade in these commodities.
What Exactly is an ETF?
ETF stands for Exchange Traded Fund. ETFs are listed investment vehicles that provide exposure to assets that are typically difficult to invest in. Because they are funds, they are similar to other types of funds in that they are pooled investments that are then used for greater purchasing power. However, unlike some mutual funds, ETFs are able to be traded real time on a stock exchange just like you can with shares of a company.
In that sense, many people refer to ETFs as ETF Stocks. One reason is that ETFs are traded like stocks but also because popular ETFs such as the SPY represent an aggregate investment in an index of stocks.
Who Makes ETFs
Large companies called ETF Providers launch ETFs to be traded on exchanges. They are responsible for the creation and redemption process that facilitates the distribution of shares to buyers and sellers. An important piece of the creation redemption process sees ETF Providers being self appointed market makers for the shares that are traded on stock exchanges.
Market making these instruments means that the providers are responsible for making two way price quotes that provide liquidity for the instrument, which encourages investors to trade these products. Making markets also means that the market maker has the opportunity to profit from arbitrage opportunities between the quoted prices and the resulting hedge with the underlying instruments.
In the United States, the largest providers of ETFs are State Street, Blackrock, Vanguard, Deutsche Bank AWM X-trackers and Invesco PowerShares (source: Investopedia).
Other Types of ETFs
ETFs cover many different asset types – not just commodities. Below are the main ETF categories:
Equity ETFs
Equity are the most popular ETFs with the largest ETF in the world being the SPY, which is based on the S&P 500 index. Here are the other top Equity ETFs.
TOP 10 US Equity ETFs| Symbol | Name |
|---|---|
| SPY | SPDR S&P 500 ETF |
| IVV | iShares Core S&P 500 ETF |
| VTI | Vanguard Total Stock Market ETF |
| EFA | iShares MSCI EAFE ETF |
| VOO | Vanguard S&P 500 ETF |
| VWO | Vanguard FTSE Emerging Markets ETF |
| VEA | Vanguard FTSE Developed Markets ETF |
| QQQ | PowerShares QQQ ETF |
| IJH | iShares Core S&P Mid-Cap ETF |
| IWD | iShares Russell 1000 Value ETF |
Volatility ETFs
Volatility ETFs enable various ways to invest in the volatility of the US markets via the VIX index, where the VIX value is a weighted calculation generated from the out of the money call and put options on the S&P 500 index. Volatility ETFs provide exposure to the VIX without having to invest in options.
Top 10 Volatility ETFs| Symbol | Name |
|---|---|
| VXX | iPath® S&P 500 VIX Short-Term Futures ETN |
| XIV | VelocityShares Daily Inverse VIX Short-Term ETN |
| SVXY | ProShares Short VIX Short-Term Futures ETF |
| UVXY | ProShares Ultra VIX Short-Term Futures ETF |
| TVIX | VelocityShares Daily 2X VIX Short-Term ETN |
| ZIV | VelocityShares Daily Inverse VIX Medium-Term ETN |
| VIXY | ProShares VIX Short-Term Futures ETF |
| XIVH | VelocityShares VIX Short Volatility Hedged ETN |
| VXZ | iPath S&P 500 VIX Mid-Term Futures ETN |
| EXIV | VelocityShares 1X Daily Inverse VXTOXX Futures ETN |
Foreign Currency ETFs
Provide exposure to the FOREX market easily via the following ETFs:
Top 10 Currency ETFs| Symbol | Name |
|---|---|
| UUP | PowerShares DB US Dollar Index Bullish Fund |
| FXE | Guggenheim CurrencyShares Euro Trust ETF |
| FXB | Guggenheim CurrencyShares British Pound Sterling Trust ETF |
| EUO | UltraShort Euro ETF |
| FXC | Guggenheim CurrencyShares Canadian Dollar Trust ETF |
| FXA | Guggenheim CurrencyShares Australian Dollar Trust ETF |
| YCS | UltraShort Yen ETF |
| FXF | Guggenheim CurrencyShares Swiss Franc Trust ETF |
| USDU | WisdomTree Bloomberg U.S. Dollar Bullish Fund |
| FXY | Guggenheim CurrencyShares Japanese Yen Trust ETF |
Interest Rate ETFs
Enable investors the opportunity to trade in bonds easily via the below popular bond ETFs:
TOP 10 US Equity ETFs| Symbol | Name |
|---|---|
| SPY | SPDR S&P 500 ETF |
| IVV | iShares Core S&P 500 ETF |
| VTI | Vanguard Total Stock Market ETF |
| EFA | iShares MSCI EAFE ETF |
| VOO | Vanguard S&P 500 ETF |
| VWO | Vanguard FTSE Emerging Markets ETF |
| VEA | Vanguard FTSE Developed Markets ETF |
| QQQ | PowerShares QQQ ETF |
| IJH | iShares Core S&P Mid-Cap ETF |
| IWD | iShares Russell 1000 Value ETF |
There are literally thousands of ETF’s listed on stock exchanges all around the globe, tracking nearly every conceivable asset class index, some let you bet on the asset class index decreasing in value rather than increasing, some are very heavily geared, some track some pretty obscure corners of the investing universe.