3 Commodity ETFs Worth Biting Into (2024)

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If you’re interested in riding higher commodity prices, you might want to invest in commodity ETFs. According to a Bloomberg report, the hottest commodity right now is cocoa, the main ingredient for chocolate. Soaring prices could lead to more price increases from confectionery firms such as Hershey (NYSE:HSY) and Mondelez International (NASDAQ:MDLZ).

As a result of poor cocoa harvests, the price of cocoa futures could reach $10,000 a ton, up from $5,600 in mid-February.

“I don’t think there’s anyone out there who can predict where this train will stop with a straight face, just because of how unprecedented this kind of rally is,” Bloomberg reported comments from John Goodwin, a senior commodity analyst at ArrowStream Inc.

Including a small portion of your investment portfolio in commodities isn’t the worst idea in the world. Investors who did so two years ago benefited from inflation over this period. In July 2022, a ton of Cocoa traded for $2,284. It’s up four-fold in the 20 months since.

If you want to add a little sugar and spice to your portfolio, consider buying these three commodity ETFs.

GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB)

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GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (NYSEARCA:COMB) has the lowest fees of this trio of commodity ETFs with a total expense ratio of 0.25%, or $25 per 10,000 invested. If you read the prospectus, you’ll see that it says $31 per $10,000 invested. That’s because it assumes a 5% gain in the value of your investment over the first year.

A few things to know about COMB:

1) It’s actively managed by portfolio managers Benoit Autier and Jeff Klearman. Autier, in addition to his duties as portfolio manager, has been Graniteshares Head of Product since Nov. 2016. Autier’s been the lead manager since its inception in May 2017.

2) It invests in futures contracts to gain exposure to 22 commodities, including coffee, corn, cotton, crude oil, gold, live cattle, silver, etc.

3) You do not need to complete a K-1 form each tax year. It is more complicated to complete than a Form 1099. K-1s are used for partnership income, whereas 1099s are for individual owners.

4) Its top three commodities by weight are energy (28.40%), precious metals (22.80%), and grains (19.50%).

5) The 12-month trailing yield is a healthy 5.82%.

iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT)

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iShares GSCI Commodity Dynamic Roll Strategy ETF (NASDAQ:COMT) has the second-lowest fees of this trio with a total expense ratio of 0.48%.

A few things to know about COMT:

1) It’s a passively managed ETF tracking the performance of the S&P GSCI Dynamic Roll (USD) Total Return Index. The index measures the performance of futures contracts for 23 different commodities. Unlike COMB, cocoa is one of the commodities tracked.

2) S&P Dow Jones Indices, the index provider, says the following about the dynamic roll strategy:

“When the futures curve for a given commodity is in a general state of contango, the S&P GSCI Dynamic Roll methodology will generally use futures contracts months that are further out on the futures curve, with the intention of minimizing the effects of negative roll yields.”

The index tracks the performance of monthly futures contracts, which roll over from one month to the next. Contango happens when the futures price is higher than the spot price. When this happens, the index will choose monthly futures further out.

It’s a reason commodities investing is not for everyone.

3) The 12-month trailing yield is 5.07%.

Harbor Commodity All Weather Strategy ETF (HGER)

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Harbor Commodity All Weather Strategy ETF (NYSE:HGER) has the highest fees of this trio, with a total expense ratio of 0.68%.

A few things to know about HGER:

1) It tracks the performance of the Quantix Commodity Index, an index developed by the ETF’s sub-advisor, Quantix Commodities LP, a provider of professional commodity investment solutions. Its management team has been involved in commodities for three decades.

2) The index uses a proprietary quantitative methodology involving a five-step process to identify the appropriate commodities and their weights within the index. It first rates each of the 24 most liquid commodity futures by their economic significance and quality relative to inflation.

The maximum commodity sector weighting is 50%, with any individual commodity capped at 20% (gold is capped at 40%) and a minimum of 2%. At least 15 commodity futures must be in the index.

3) The newest of three commodity ETFs, HGER, was launched in Feb. 2022. If you’re wondering why gold has such a high weight, it’s because of the index’s Scarcity Debasem*nt Indicator.

“The QCI also includes a scarcity debasem*nt indicator to indicate what the source of inflation is; in a debasem*nt regime, where inflation is coming from a weaker USD, the QCI tends to tilt toward gold, and in a scarcity regime, where inflation is coming from demand outstripping supply, the QCI will tilt toward consumable commodities such as oil,” Harbor Capital wrote in a March 2023 article from its website.

HGER is up more than 7% since its launch.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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