Categorized | Commodities, ETF

Commodity ETFs Put Food on the Table

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Commodity ETFs

Select Commodity ETFs Balance Diversified Portfolios

Commodity ETFs offer diversity, which investors can choose by commodity, industry or past performances. Similar to mutual funds, exchange traded funds focus on a single commodity or group of companies within an industry. Investors can choose ETFs that concentrate on futures, agriculture, natural resources or their underlying indexes.

For example, the Goldman Sachs Commodity Index follows 24 different commodity baskets, investing 67% of its cash reserves in energy, but allocating minor percentages to agriculture, industrial metals, livestock and precious metals. Commodity ETFs trade on the market just like stocks, but diversification helps lower risks for investors by spreading them over a variety of stocks, metals, bonds or indexes.

Commodity ETFs Focus on Agricultural or Natural Resources

Each fund concentrates on particular metals, natural resources or agricultural products, and fund managers create their own indexing benchmarks. Investors need to research past performances, fund allocations, and related indexes before committing to buying shares of a particular ETF. Commodity ETFs that follow silver seem ideally positioned for growth because the price of silver has dropped from a high of $50 to the current price under $32.

Current trends in exchange traded funds favor oil, gold, agricultural investing and silver. Industrial demand for silver exceeds the world’s annual production from mining operations, so world reserves have been decreasing steadily. Silver reached the high market price in April of 2011, and the commodity could be positioned to regain its value and more, especially with the looming European banking problems. Exchange traded funds offer strength and diversification for short-term or middle term investment strategies.

Historical performance and high demand for the metal make it likely that prices will again rise after this brief market correction. Of course, all investment strategies carry risks, so investors should always research their investments carefully. Even though commodity ETFs help manage risk, investors could still lose money.

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