These ETFs form a portfolio of futures, forward and swap contracts on the underlying commodities. The advantage of a future-based ETF is that the ETF is. The advantage of a future-based ETF is that the ETF does not incur any costs associated with holding and storing the underlying commodity. However, there are other risks that relate to the futures contracts
themselves.
Futures-backed commodity funds are designed to provide exposure to the target commodity through the use of futures contracts, futures transactions and swaps. There is a great deal of investment uncertainty associated with these types of ETFs. That’s because their need to buy and sell large quantities of futures contracts sometimes allows them to influence futures prices rather than simply track prices. Afraid of potential commodity bubbles, the Commodities Futures Trading Commission proposed position limits for futures contracts, forcing some of these funds to create new mechanisms to track their
underlying commodities.
Some ETPs are more similar to mutual funds than others. Like investment funds, ETFs are pooled investment funds that offer investors an interest in a professionally managed, diversified investment portfolio. Unlike investment funds, however, ETF stocks are traded like stocks and can be bought or sold at fluctuating prices throughout the trading day. They are also subject to bid-ask spreads, which represent the difference between the highest price a buyer will pay and the lowest price at which a seller sells shares of a stock at any given time
.
Investors seeking exposure to gold can find stock-based alternatives such as the Veneck Gold Miners ETF () and the VanEck Junior Gold Miners ETF (), for example.
