Commodity ETFs: Commodity Exposure by Tapping Commodity Companies - dummies

Commodity ETFs: Commodity Exposure by Tapping Commodity Companies

By Russell Wild

This introduces you to ETFs that let you invest in the stocks of companies in the oil and gas sector, in mining, and in the broader category of “natural resources” or “materials.” Do your research, but these picks give you a good starting place.

Oil and gas ETFs

More than a dozen ETFs allow you to invest in the stocks of oil and gas companies. Among them are these options:

  • Vanguard Energy ETF (VDE)

  • Energy Select Sector SPDR (XLE)

  • iShares Dow Jones U.S. Energy Index (IYE)

  • PowerShares Dynamic Energy Exploration & Production (PXE)

  • iShares Dow Jones U.S. Oil Equipment & Services Index Fund (IEZ)

  • iShares S&P Global Energy Index Fund (IXC)

  • Global X Oil Equities ETF (XOIL)

The funds all sound different from each other, but when you look at each of their rosters, they are actually quite similar.

Keep in mind that the energy sector represents a large segment of the U.S. economy. Energy companies make up about 10 percent of the capitalization of the U.S. stock market. So just being invested in the market gives you decent exposure to energy.

Mining ETFs

Several ETFs allow you to invest in mining companies. These include:

  • Global X Pure Gold Miners ETF (GGGG)

  • Market Vectors Gold Miners ETF (GDX)

  • SPDR S&P Metals and Mining ETF (XME)

  • Global X Silver Miners ETF (SIL)

These funds may make more sense in a portfolio than the energy ETFs.

Materials or natural resources ETFs

To give you extra exposure to companies that mine for gold and silver, produce oil and gas, and either produce or distribute other commodities, broader natural resource funds are the way to go. If commodity prices pop, the broader natural resource funds generally do well, and you’re not taking on too much risk by banking on any one commodity or commodity group.

A natural resources fund may also be called a materials fund.

Options in this category include these ETFs:

  • Materials Select Sector SPDR (XLB)

  • iShares Dow Jones U.S. Basic Materials (IYM)

  • Vanguard Materials ETF (VAW)

  • iShares S&P North American Natural Resources (IGE)

One favorite in this category is the SPDR S&P Global Natural Resources ETF (GNR). This fund has an expense ratio of 0.50 percent. About 45 percent of its holdings are in the United States or Canada, and the remaining 55 percent are spread out through both the developed world and emerging markets.

It offers exposure to a good variety of commodity firms: oil and gas, 32 percent; fertilizers and agricultural chemicals, 19 percent; diversified metals and mining, 16 percent; and so on.