Best Commodity ETF UK To Watch

Investing in commodities provides diversification opportunities for investors looking to add multiple asset classes in their portfolio. Some of the Popular Commodity ETFs UK invest in popular commodities like natural resources (crude oil and natural gas), precious and industrial metals (gold and silver), and agricultural goods.

In this guide, we review popular commodity ETF UK for 2022. We also give a step-by-step guide on investing in commodity ETFs in the sections below.

Commodity ETF UK 2022 List

Below, we bring you a list of some of the popular Commodity ETF UK in 2022. You can scroll down to get a detailed review of each of these exchange traded funds.

1. iPath Bloomberg Commodity Index Total Return ETN
2. SPDR Gold ETF
3. Sprott Physical Silver Trust
4. Aberdeen Standard Physical Palladium Shares ETF
5. United States Oil Fund
6. United States Gasoline Fund
7. Invesco DB Agriculture Fund 
8. SPDR S&P Oil & Gas Exploration & Production ETF
9. Teucrium Corn Fund ETF
10. Teucrium Wheat Fund ETF

Commodity ETFs UK Reviewed

For investors looking for a more detailed analysis on the popular Commodity ETFs available in the UK markets, we have reviewed 10 popular ETFs in the sections below.

1. iPath Bloomberg Commodity Index Total Return ETN 

The iPath Bloomberg Commodity Index Total Return ETN invests in gold, natural gas, copper, silver, soybeans, WTI crude oil, corn, Brent crude, aluminum, and zinc. This ETN managed by Barclays tracks the performance of the Bloomberg Commodity Index Total Return Index. Note that ETNs are not ETFs. ETNs are debt instruments that give you payment upon redemption or maturity after deducting a fee.

While the diversification reduces the market risk of falling commodity prices, the iPath Bloomberg Commodity Index Total Return ETN bears the credit risk associated with the financial institution.

The ETN has recovered by around 30% in the last 12 months after falling 29% during the pandemic. As the economy recovers from the pandemic, the ETN’s performance is normalizing.

The overall commodity market is in a long-term bear and that is reflected in the ETN’s price, which has been declining since 2008.

2. SPDR Gold ETF 

When thinking of investing in commodities, many investors may think about gold as a possible diversification opportunity. Investors invest in gold to hedge their portfolios from a market crash. Historically, gold prices rose during the 2009-2011 period when the world recovered from the financial crisis. At that time, many banks went bust, and people found gold safer than currency.

Gold prices began rallying in 2020 as the road to recovery from the pandemic took off.

Holding physical gold through bullion bars and coins is inconvenient. It has the risk of theft, lacks flexibility, and entails a storage cost. The SPDR Gold ETF takes care of all these hassles and gives you exposure to its gold vault for as little as just $50 – or about £35.

The ETF moves alongside the gold price. It rallied 38% between March 20, 2020, and August 7, 2020, when the pandemic created panic and investors fled to their safe-haven gold. As things started to stabilize from August, the ETF fell 15% from its peak.

3. Sprott Physical Silver Trust 

If you’re looking to gain exposure to the price of silver,  Sprott Physical Silver Trust is a popular commodity ETF in this industry. Investing in silver can offer protection against inflation and high liquidity to investors. Furthermore, the price of silver tends to rise in periods of economic volatility.

The Sprott Physical Silver Trust invests all of its assets into silver bullion, meaning investors get direct exposure to the metal’s value. As such, this ETF removes the need to hold physical silver, which can present numerous logistical challenges. Furthermore, this ETF only charges an expense ratio of 0.62% per annum, which is pretty average for a silver ETF.

In terms of performance, this ETF has returned 44.37% and 14.18% in the last two years. In addition, the Sprott Physical Silver Trust has generated a positive return in four of the last five years.

4. Aberdeen Standard Physical Palladium Shares ETF 

Apart from popular precious metals like gold and silver, there are some lesser know precious metals like palladium. Palladium is largely used in the automotive, chemical, electrical, jewellery and dental industries. Around 75% of palladium produced is used in automobile catalytic converters and has huge demand in the world’s largest auto markets – ­the U.S and China. However, 80% of palladium supply comes from Russia and South Africa. The geopolitical conditions and automotive market drive palladium price.

Most auto stocks are surging on the back of electric vehicle (EV) momentum, and that is driving palladium to new highs. It has become a metal more expensive than gold and has achieved the status of a monetary metal.

The Aberdeen Standard Physical Palladium Shares ETF is a popular Commodity ETFs for United Kingdom-based investors. It allows you to invest in physical palladium cost-effectively and conveniently.

As the ETF tracks palladium price, it is in a long-term bull, rising almost 380% between June 2016 and March 2021. It saw a dip of almost 30% on March 9, 2020, but quickly recovered (up 45%) on March 23, 2020. However, this year hasn’t provided the same returns, as the ETF has fallen by around 27% since the start of 2021.

5. United States Oil Fund 

Unlike precious metals, oil has a high application value. It is used to make gasoline, jet fuel, and petroleum products like plastics, medicines, ink, cosmetics, fertilizer, and asphalt. You can’t just go and purchase a barrel of oil but invest in oil through futures contracts. Like every commodity, demand and supply forces determine oil price. But the oil supply is partially controlled by OPEC.

Two main types of oil are Brent Crude, mainly found in Europe, and West Texas Intermediate (WTI), largely found in the U.S. These are used to make gasoline. The United States Oil Fund invests in oil futures to tracks WTI oil prices.

In March 2020, when the pandemic halted world transportation, oil prices went negative as companies were paying to store oil. The OPEC asked its member countries to stop oil production to bring supply in line with demand. As the economy reopens, the oil price is rising. But demand from airlines, one of the biggest oil consumers, remains subdued amid international travel restrictions.

Hence, the United States Oil Fund surged 95% last year and is now nearing pre-pandemic levels. Currently, it is in a long-term bear as it did not recover from the 2009 financial crisis and the 2014 oil crisis.

6. United States Gasoline Fund

If you want to get exposure to gasoline prices, the United States Gasoline Fund is a popular Commodity ETF UK. It invests in futures and swaps to track gasoline prices. It gives you exposure to the gasoline variant of oil, which depends on the performance of the travel and transport industry.

After falling 65% in March 2020, the United States Gasoline Fund surged threefold, returning to its pre-pandemic level. 

7. Invesco DB Agriculture Fund

One commodity ETF that gives exposure to the agriculture sector is the Invesco DB Agriculture Fund. As you may know, the agriculture sector involves the production of commodities such as grains, dairy, livestock, meat, and more. As such, agriculture ETFs will typically invest in one (or more) of these products to give investors exposure to price fluctuations.

The Invesco DB Agriculture Fund invests in commodity futures, which essentially speculate on what the future price of an asset may be. In terms of asset composition, this ETF invests in contracts based on the price of soybeans, wheat, corn, coffee, live cattle, sugar, and more. Due to this, investors get diversified exposure to a wide range of commodities which reduces overall risk.

According to data from Yahoo Finance, this ETF is up over 25% in the year-to-date and is up over 30% since this date last year. This is impressive considering agricultural products tend not to produce as high returns as some other commodities. The expense ratio is at 0.85% per annum.

8. SPDR S&P Oil & Gas Exploration & Production ETF

One way of investing in commodities is through buying physical assets or futures. Another way is to purchase companies that produce and sell these commodities. The SPDR S&P Oil & Gas Exploration & Production ETF invests in oil and gas stocks listed in the US. This ETF UK is a bridge between stocks and commodities. It is not as volatile as oil price, but the ETF gains when the oil price rises. As it has exposure to mining companies, other factors also play a role in the ETF’s performance.

The ETF surged 123% in the last one-year but fell around 35% in the last five years as the long-term bear nature of oil haunts the oil and gas stocks.

9. Teucrium Corn Fund ETF 

Till now, we discussed hard commodities like metals and oil that are mined or extracted from the earth and can be stored for decades.

Soft commodities are grown like food grains, livestock, and other agricultural products. They are perishable, which brings a higher risk of storage. Their demand continues to grow as the world population increases, but it is the supply where the risk is. Uncertainties like weather and pathogens can impact their supply.

Given the high risk of supply and storage, soft commodities are more volatile than hard commodities. Hence, one way to get exposure to agricultural commodities is through ETFs. Corn is among the top three most widely produced agricultural commodities as it is used for human consumption, livestock feed, and ethanol production. One possible Commodity ETK UK for corn is the Teucrium Corn Fund ETF that has holdings in futures contracts diversified across multiple maturities.

The Teucrium Corn Fund ETF has outperformed the broader stock market in the last 12 months, increasing by over 37% compared to the FTSE 100 index that surged 20.7%. The growth comes on the back of demand from China, where heavy rains have significantly impacted corn production.

10. Teucrium Wheat Fund ETF

Wheat is the third most-produced soft commodity as it is a staple food in most countries. China and India are among the top two producers of wheat. During the pandemic, people took to baking while staying home. The consumption of staple food increased, driving the demand for wheat and creating a supply shortage. Stores started selling smaller packs of wheat flour.

One way to get exposure to the rising wheat demand is the Teucrium Wheat Fund ETF. It has holdings in futures contracts diversified across multiple maturities. This commodity ETF UK has increased over 22% this year, with several dips and upcycles.

Are Commodity ETFs a Valuable Investment?

Commodity prices rise when inflation rises. But the sluggish economic growth in the U.S. and Europe, and a decline in China’s economic growth kept inflation in major global economies below 2%.

Inflation reduces your real income from stocks but increases income from commodities. The last time anybody made significant money in commodities was the 2009-2011 period when the economy recovered from the financial crisis.

The global economy is currently recovering from the pandemic crisis, because of which commodities are in an uptrend. However, it is important t remember that the demand can change in the short-term or the long-term. It is important for users to keep track of the possible ETFs they choose to invest in, and only enter the market after conducting their own research.

Commodity ETF UK Investment Platforms 2022

If you are interested in investing in Commodity ETFs, you may want to do so with a stock broker. Users may want to begin trading with stock brokerages that offer low fees on trading, multiple investment options and various tools & features to help support their investment process.

In the sections below, we review two stock brokers that allow users to trade Commoditty ETFs in the UK.

How to Purchase the Commodity ETFs UK

If users are looking to invest in Commodity ETFs in the UK, you should look to choose a suitable broker that can provide you with low fees, multiple stock options and additional tools & features.

After choosing your suitable broker, here is how you can begin the investment process.

Step 1: Open an Account

Head over to the homepage of your chosen broker and begin the account set-up process. You will be required to fill in your personal details – including your full name, email address and mobile number. Create a username and password for the platform to continue.

Step 2: Verification Process

Most reputable brokers in the UK are regulated by the FCA – which is why users may be required to verify their accounts. To do this, simply upload proof of ID (a copy of your driver’s license or passport) and proof of address (a copy of a bank statement or utility bill). Once these documents have been uploaded, your broker should verify them in a couple of minutes.

Step 3: Deposit funds

The next step is to deposit funds into your trading account. Most brokers may support 1 or more of the following payment methods:

• Credit card
• Debit card
• Bank transfer
• e-wallet

Choose your preferred payment option and deposit the funds into your account.

Step 4: Invest in Commodity ETFs

Once your account has been funded, proceed to search for any ETFs you wish to purchase on your platform’s search bar. Fill in the amount you want to credit into the trade, and confirm your transaction.

Conclusion

In summary, commodities may be used as a possible diversification strategy to add more asset classes in your portfolio. They are risky and significantly impacted by demand-supply and geopolitical events. This is why users should carefully analyse any possible investment.

Frequently Asked Questions on Commodity ETFs