5 Best Commodity ETFs to Buy Now

red and green bar chart with blue moving average superimposed over image of oil refinery

Commodity prices often move based on escalating geopolitical tensions, as they did last spring in the wake of surgical strikes on Iran by Israel that the United States supported.

More recently, investors sought the perceived safety of hard assets amid increased uncertainty surrounding the Trump administration’s reshaping of foreign policy, including the ousting of Venezuelan President Nicolás Maduro and demands to annex Greenland.

Besides speculative gains, commodities can also be useful for hedging inflation. But for most retail investors, buying physical commodities outside gold and silver directly (which you can do at Costco) isn't realistic. It's not like you can store barrels of oil or bushels of wheat in your garage.

While investing in companies that produce agricultural, mining or energy commodities can offer partial exposure to geopolitical uncertainty or inflation, they're not perfect substitutes because stock prices also reflect company-specific risks, including debt, management quality and operating costs.

To get around these risks, many investors turn to commodity exchange-traded funds (ETFs), which trade publicly and offer diversified exposure to commodity markets. But these funds don't usually hold physical commodities. Instead, they typically invest in futures contracts.

As you'll see, choosing the best commodity ETF isn't as simple as picking the one with your favorite raw material in the name. You'll need to take a close look at how each fund gets its exposure and be prepared to navigate some hidden tax traps along the way.

The ins and outs of commodity ETFs

Outside of precious metals, such as gold and silver ETFs, most commodity funds don't own physical commodities. Rather, they gain exposure through futures contracts.

A futures contract is a derivative that obligates the buyer to purchase (and the seller to deliver) a specific amount of a commodity at a set price on a future date. The ETF is therefore holding contracts that reflect bets on future commodity prices.

For example, an ETF designed to track the price of West Texas Intermediate (WTI) crude oil doesn't buy and store barrels of oil. Instead, this fund might buy WTI crude oil futures contracts.

That's a key point. When you buy a commodity ETF, you're not getting direct exposure to the current (spot) price of the commodity. You're getting exposure to the price of a specific futures contract or basket of different ones, depending on the fund.

For instance, the spot price of oil might be $65 per barrel in June, but the ETF could be holding July contracts, which might trade higher or lower. While futures and spot prices are generally correlated, they're not identical and don't always move in lockstep.

This leads to another critical concept: contango. Futures contracts for commodities trade along what's known as a futures curve, a plot showing prices for delivery in various future months.

In a contango market, futures prices are higher than the current spot price, a common condition for many commodities, especially oil. Here's why that matters: Futures contracts expire. When July comes around, our hypothetical crude oil ETF can't hold the July contract anymore. It must roll the position by selling the expiring July futures and buying a one dated later, say August.

But when the futures curve for oil is in contango, August contracts are more expensive than July. That means the ETF sells low and buys high, locking in a small loss each time it rolls.

This repeated cycle creates what's called negative roll yield, which is a performance drag over time. For long-term investors, this can mean that even if spot prices rise over time, your ETF's return might be much lower or even negative due to the cost of rolling futures in a contango environment.

There's one more wrinkle: taxes. Some commodity ETFs are structured as commodity pools, which means they issue a Schedule K-1 tax form (PDF). The form is more complex than the standard 1099 tax form and can delay filing, especially for investors with multiple K-1s. The K-1 form also introduces complications such as potential state-level tax obligations and more detailed reporting requirements.

The bottom line: Commodity ETFs can be useful for short-term tactical exposure, but between futures-based tracking, roll costs and tax complexity, they're not always investor-friendly for long-term buy-and-hold portfolios.

How we chose the best commodity ETFs

We began by screening out the riskiest corners of the commodity ETF space, which meant excluding funds that use leverage or inverse exposure. Funds that concentrate on a single commodity, such as oil, gold or natural gas, were also excluded.

Commodities are already volatile, so most investors, unless they're active traders, are better off with long-only ETFs that hold a diversified basket spanning energy, metals and agriculture.

Next, we filtered for tax simplicity. Specifically, we only included ETFs structured to avoid issuing a Schedule K-1 form. Some are clearly labeled "No K-1" in the fund name, but for others, you must dig into the prospectus or tax documentation to confirm. Avoiding K-1s makes tax reporting easier and helps sidestep delays and state-level complications.

From there, we applied a two-part screen:

Liquidity: We prioritized ETFs with a reasonably low 30-day median bid-ask spread to minimize trading costs.

Reputability: We looked for funds with sufficient assets under management (AUM), as a proxy for stability, scalability and investor trust.

For commodity ETFs, expense ratios weren't as big a concern. Complexity in this space naturally drives costs higher, and most offerings are far more expensive than passive equity or bond ETFs.

But while there's less basis for comparison, it's still worth shopping around and taking note.

Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF

Assets under management: $4.7 billion
Expenses: 0.59%, or $59 annually for every $10,000 invested
30-day median bid-ask spread: 0.07%

The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) seeks to outperform the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which includes 14 commodities across the energy, metals and agriculture sectors.

The ETF is actively managed to enhance roll yield, a strategy that involves selecting futures contracts with the most favorable pricing along the curve to reduce the impact of contango over time.

To support this exposure, the fund holds cash collateral in a money market fund and uses some swaps to improve tracking efficiency.

PDBC doesn't issue a K-1, simplifying tax reporting. However, investors should be aware that, in taxable accounts, the fund typically pays a large December distribution that's mostly classified as ordinary income.

Learn more about PDBC at the Invesco provider site.

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First Trust Global Tactical Commodity Strategy Fund

Assets under management: $1.9 billion
Expenses: 0.98%
30-day median bid-ask spread: 0.04%

The First Trust Global Tactical Commodity Strategy Fund (FTGC) is an actively managed ETF with no benchmark index.

Instead, the portfolio managers have broad discretion to select futures contracts they believe offer the most favorable risk/reward trade-offs and to avoid those they view as less attractive.

FTGC's current holdings, in addition to cash and Treasury collateral, include gold, silver, copper, gasoline, WTI crude, coffee, soybeans, corn, nickel, sugar, cattle, natural gas, cocoa, cotton and more.

As of the latest data, the portfolio is heaviest in energy (32.97%), followed by agriculture (26.78%).

The fund avoids issuing a Schedule K-1 and instead provides a standard 1099. Unlike PDBC, FTGC spreads its distributions out quarterly in March, June, September and December rather than delivering one large year-end payout.

Learn more about FTGC at the First Trust provider site.

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abrdn Bloomberg All Commodity Strategy K-1 Free ETF

Assets under management: $2.0 billion
Expenses: 0.26%
30-day median bid-ask spread: 0.05%

The abrdn Bloomberg All Commodity Strategy K-1 Free ETF (BCI) passively tracks the Bloomberg Commodity Index Total ReturnSM, aiming to replicate the index's holdings as closely as possible to minimize tracking error.

The fund holds cash collateral in money market instruments and provides broad exposure across metals (both base and precious), agriculture and energy.

As a passive strategy, BCI offers significantly lower costs than actively managed commodity ETFs.

However, it might be more vulnerable to performance drag from contango since the fund cannot adjust roll decisions and must follow the index methodology.

Structured as a 1940 Act fund, BCI also avoids issuing a Schedule K-1 and instead provides a standard 1099 for tax purposes.

Learn more about BCI at the abrdn provider site.

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Harbor Commodity All-Weather Strategy ETF

Assets under management: $1.6 billion
Expenses: 0.68%
30-day median bid-ask spread: 0.12%

The Harbor Commodity All-Weather Strategy ETF (HGER) tracks the Quantix Commodity Index. While not actively managed, the index uses a more sophisticated, rules-based quantitative approach that aims to systematize commodity trading strategies.

HGER trades 24 of the most liquid commodity futures contracts listed on U.S. or U.K. exchanges.

The strategy emphasizes inflation sensitivity by targeting commodities with high pass-through costs and strong correlation to the Consumer Price Index (CPI). It also considers such factors as scarcity and currency debasement.

Structured as a 1940 Act fund, HGER does not issue a K-1 and instead provides a 1099, making it easier to manage at tax time.

Learn more about HGER at the Harbor provider site.

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Direxion Auspice Broad Commodity Strategy ETF

Assets under management: $171.3 million
Expenses: 0.72%
30-day median bid-ask spread: 0.07%

The Direxion Auspice Broad Commodity Strategy ETF (COM) passively tracks the Auspice Broad Commodity Index, but its approach is more dynamic than a traditional long-only strategy.

The fund's 12-commodity basket, spread across agriculture, energy and metals, can be either long (holding futures contracts to benefit from rising prices) or flat (holding cash when trends are unfavorable), with positions that can shift intra-month.

The approach effectively makes COM a trend-following strategy designed to manage risk. That's especially important in commodity markets, which often experience prolonged downtrends.

By going flat in weaker markets, COM seeks to proactively limit drawdowns during bearish cycles.

Like other 1940 Act funds, COM avoids issuing a Schedule K-1 and instead delivers a standard 1099 for tax reporting.

Learn more about COM at the Direxion provider site.

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Tony started investing during the 2017 marijuana stock bubble. After incurring some hilarious losses on various poor stock picks, he now adheres to Bogleheads-style passive investing strategies using index ETFs. Tony graduated in 2023 from Columbia University with a Master's degree in risk management. He holds the Certified ETF Advisor (CETF®) designation from The ETF Institute. Tony's work has also appeared in U.S. News & World Report, USA Today, ETF Central, The Motley Fool, TheStreet, and Benzinga. He is the founder of ETF Portfolio Blueprint.