A Commodities ETF is an exchange traded fund (ETF) that tracks the performance of any commodity on the commodities market. Although traded in the same manner as stocks, Commodity ETFs do not represent stock securities, but only commodities, such as precious metals and futures; it’s for this reason that the Commodity ETFs or ETCs (Exchange Traded Commodities) were created: to allow experienced security investors to participate in the commodities exchange.
The ETC is fully collateralized and asset backed, tracking the performance of the underlying commodity index, and the total return indices of the commodity in question. It is traded in the same manner as a stock or a security ETF, which is itself a unique brand of investment:
The Exchange Traded Fund, similar to a mutual fund, is in fact a collection of many different securities (stocks) which is traded on the market as one, big security. Some ETFs track entire indexes, such as the S&P 500 or NASDAQ, allowing its investors to invest in essentially an entire market (i.e. S&P 500) as opposed to any one of the hundreds of securities in it. ETFs don’t have to represent an entire chunk of the market, however. An ETF can comprise any unique collection of securities, in the same way that a mutual fund consists of a wide collection of securities all lumped together into one fund.
Because they both consist of securities lumped together in one package, novice investors often confuse ETFs with the Mutual Funds, but here is the important difference: the Mutual Fund is a professionally managed group of securities which may be traded by the fund manager in any way he/she sees fit to make the fund the most profitable for its investor pool, whereas the ETF is not professionally managed. It is not brought together by an investment pool. It’s simply the collection of stocks that, once assembled, represents them and is traded as one stock. Investing in an ETF is cost and tax efficient, and exposes an investor to the entirety of the market.
The ETC, then, in the same fashion as ETF, exposes the investor to the entirety of the commodities markets. Traded like a security, it is simply a vehicle for investment in the volatile commodity indices, exposing investors to the energy, metals, softs and agricultural commodities on exchange, during market hours.
Tags: commodity, commodity etc, commodity etf, etc, etf