Introduction to Commodities Investing

Commodities are a unique asset class with unique challenges: This primer will prepare you to jump into the asset class.

  • Commodity Indices and Benchmarks

    One of the most critical questions that must be answered by any commodity index is how to select and weight each commodity in the index to reflect a neutral representation. Equity indices have a similar challenge but can always fall back on market convention to select and weight by market capitalization. If we’re talking about a broad commodities index though, there is no market convention. Do you include cocoa? What about soybeans? What percentage of the index should oil be?

  • Commodity ETPs: The Basics

    There are close to 300 commodity ETP listings on the London Stock Exchange including products based on gold, oil, and agriculture. With so many to choose from, it’s obvious there’s investor demand. It also makes understanding how commodity ETPs work all the more important.

  • Precious Metals ETFs

    Investors turn to gold, silver and platinum for many reasons: inflation protection, risk management or even speculation. Metals ETPs have been enormously popular with investors in part because they can actually hold and store the physical underlying metal.

  • Excess Return

    Investors buying commodity exchange-traded products naturally focus on the prices of the commodities themselves. But it’s important to remember that most trackers don’t invest in commodities directly (some metals funds do). Instead, they buy commodity futures contracts that have three sources of return, not just one (the “spot” price of the commodity).

  • Investing in Commodities: Futures Contracts vs Spot Prices

    Usually when you hear someone discuss the price of any commodity—say, gold, wheat or sugar—it’s in reference to the commodity’s spot price; that is, the price at which you can currently pay to receive the commodity immediately. However, there's often more to consider as many ETPs use futures contracts to access their underlying market.

  • Contango and Backwardation

    Novice commodity investors often believe that when they invest in oil, their money is going directly to buy barrels of oil. When oil goes up, they’ll make money. The reality, however, is that with the exception of some physical metals like gold and silver, it’s extremely hard for investors to access the underlying commodities in scale. That’s where the commodities futures markets comes in.