Our Pick Of The Best Commodity ETFs (2024)

Our Pick Of The Best Commodity ETFs


Invesco Physical Gold Exchange-Traded Commodity

Our Pick Of The Best Commodity ETFs (1)

Fund size

$14.8 billion

Fund type



LBMA Gold Price PM

Our Pick Of The Best Commodity ETFs (2)

Buy ETCOur Pick Of The Best Commodity ETFs (3)

On interactive investor's Website

Fund size

$14.8 billion

Fund type



LBMA Gold Price PM

Why We Picked It

This fund provides exposure to the gold price at a reasonable cost. It is typically easy to trade, physically backed by gold bullion held in JP Morgan’s London vaults, and has a long track record.

Who should consider investing?

If you have a positive view about the prospects for the gold price, the potential for gold to protect against inflation, as well as to act as a hedge against risks such as geo-political events, this is potentially a straightforward means of gaining exposure.

Over 10 years to the end of June 2023, this fund produced a return of 56.7%. Given the characteristics of gold and its behaviour, this fund has the potential to provide positive returns in a different manner compared with other major asset classes, such as equities, and we would expect it this may offer investors useful diversification benefits as a result.


iShares Physical Silver Exchange-Traded Commodity

Our Pick Of The Best Commodity ETFs (4)

Fund size

$545 million

Fund type



LBMA Silver Price

Our Pick Of The Best Commodity ETFs (5)

Buy ETCOur Pick Of The Best Commodity ETFs (6)

On interactive investor's Website

Fund size

$545 million

Fund type



LBMA Silver Price

Why We Picked It

To complement gold, a smaller position in a physical silver exchange-traded commodity could be considered. This fund balances being a leader in its area, with a low total expense ratio and has a track record stretching back over a decade.

Who should consider investing?

As with gold, if an investor is worried about inflation and financial repression from the effects of rising prices and a rise in the cost of borrowing, silver can play a useful role within a portfolio. As a precious metal, silver also behaves in a similar manner to gold but can do so in an exaggerated manner – both up and down.

If you have a favourable view on gold, it is possible that silver would perform even more positively in the coming years. But note that this is far from guaranteed, however. Due to its conductivity properties, silver also has an important role to play as a key material in the energy transition process.

Annual fund charge



Nick Vaill, senior investment director at Investec Wealth, says: “We have a strong preference for ETFs that are physically replicated [see FAQs below], that is, they hold what it says on the tin, rather than via derivatives.

“The reason for this stance is chiefly relating to times of market stress when a derivative-based approach could lead to an undesired tracking error around the benchmark. We prefer ETFs backed by high calibre, market-leading firms that have a strong track record of effectively delivering for clients, along with robust risk controls.

“Costs are an important consideration when selecting passive funds, however, we would not select an investment purely based on cost. We would always wish to focus on net expected, risk-adjusted returns.

“In the bespoke portfolios we manage for clients, we wish to protect clients from inflation. We believe the theme of the energy transition and resources is going to be an immensely important topic in the years ahead and commodities should play a useful role in helping us produce real returns.”

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Frequently Asked Questions (FAQs)

Why invest in the stock market?

There are plenty of reasons to consider investing in stocks and shares – from attempting to stay ahead of inflation and aiming to make your money work as hard as possible, to potentially building up a retirement nest egg.

Every form of investing carries risk, and exposure to the stock market isn’t suitable for everyone. But assuming a potential investor has weighed up the pros and cons, understands the risks involved, and is willing to take a long-term view (at least five years and preferably much longer), the next question is how they’re going to gain exposure to the market.

One option would be to sink all their money into the shares of a single company. But this is a very high-risk strategy because companies of all shapes and sizes can go bust, leaving investors at a higher risk of potentially facing partial or, even total, losses.

What is an investment fund?

Instead of investing in a single, or even a handful, of companies, investment funds allow investors to diversify their money across a range – or basket – of holdings managed on their behalf.

Contributions are pooled from potentially thousands of investors and run by professionals in line with strict investment mandates, each with a particular aim. For example, a typical target might be to outperform a particular stock market return by 1% each year.

Investment funds can have exposure to an array of assets – from cash and bonds to property and shares – each fund characterised by a varying amount of risk. Read our in-depth feature on investment funds to learn more about how they work.

What is an exchange-traded fund?

Exchange-traded funds, or ETFs, are a type of investment fund that provides investors with access to stock and commodities markets without requiring the share-picking skills associated with choosing individual stocks.

This is because ETFs concentrate less on individual businesses and focus more on a collection of the main investments within a particular stock or commodities market, or industrial sector.

According to Refinitiv, assets under management of ETFs listed on the London Stock Exchange (LSE) stood at £866 billion in June 2023.

How do ETFs work?

You can read more here about how ETFs work. Essentially, they combine some of the characteristics of shares with some of those from index tracker funds.

Shares offer a slice of ownership of a particular company. An index tracker fund, meanwhile, is a collective investment that uses computer algorithms to help it invest in all the companies within a particular stock market index (or industrial sector) with the aim of copying its performance.

For example, a FTSE 100 ETF would aim to mimic the performance of the UK’s blue chip stock index of 100 leading company shares, whereas a mining ETF would focus on the performance of mining shares. A gold ETF would track the price of the precious metal.

With ETFs, an investment firm buys a basket of assets (shares, bonds, commodities, etc) to create a fund. It then sells shares to track the value of the fund, which is determined by the performance of the underlying assets. These shares can be traded on markets in the same way as conventional stocks.

Buying ETF shares does not mean you own a portion of the underlying assets in the way you would when buying shares directly in a company. The firm that runs the ETF owns the assets and adjusts the number of associated ETF shares to keep the price synchronised with the value of the underlying assets or index.

As with other types of shares, it is possible to apply ‘stop’, ‘limit’ and ‘open’ orders when buying ETFs. These are broker instructions that apply when certain prices are reached and are designed to head off any surprises for would-be investors.

What is a commodity ETF?

Commodity ETFs are simply a sub-set of the wider ETF universe. Andrew Prosser, head of investments at InvestEngine, says: “Popular commodities include gold, oil, and natural gas. Commodity ETFs can track the price of either a single commodity, or a basket of commodities.”

Commodity ETFs therefore allow investors to gain exposure to commodity markets, but without high levels of investment and the other practical considerations that are usually associated with owning commodities – such as storage and insurance costs.

Commodity ETFs come in a variety of guises. So-called ‘physical’ commodity ETFs either hold the relevant asset directly, or their performance is linked to a suitable index, for example, one that tracks the price of gold.

In contrast, ‘synthetic’ or ‘swap-based’ ETFs use sophisticated financial instruments called derivatives to follow an index.

ETF providers will indicate on their product literature whether they run physical or synthetic products.

InvestEngine’s Andrew Prosser says physical and synthetic ETFs each have their pros and cons: “For example, one advantage with physically-backed ETFs is that there are no costs with storing the commodity in question.

“In comparison, synthetic funds are able to track prices of the underlying commodities more closely and have less counterparty risk. In other words, the risk of a seller not delivering the commodity.”

An exchange-traded commodity (ETC) is often described as a commodity-focused ETF. This is broadly the case but, in contrast to ETFs – which typically contain a basket of commodities or other securities – an ETC allows for exposure to one single commodity.

What’s the appeal of ETFs?

Broadly speaking, ETFs tend to be ‘passive’ funds, which means that they look to copy the performance of an existing index, without the need for ‘active’ asset selection. This makes them cheaper to own because they cost less to run. Generally, the less investors pay in fees, the more their money has the potential to improve returns.

As well as competitive charges, ETFs also offer investors diversification. This helps to defend against stock market shocks by spreading money across a particular sector, rather than focus on the performance of a single company. That said, with commodity ETFs, if the price of a commodity suffers across the board, investors will see the value of their holdings drop until the said commodity comes back into favour.

InvestEngine’s Andrew Prosser says: “While commodity ETFs are a far more popular way for retail investors to gain exposure to the asset class than through either direct physical exposure or through derivative contracts, the popularity of the asset class is still dwarfed by investors’ demand for exposure to more traditional asset classes, such as equity and fixed income.”

Mr Prosser adds: “On the InvestEngine platform, commodity ETFs account for less than 3% of total assets held by do-it-yourself investors, compared to 9% for fixed income ETFs and 88% for equity ETFs.”
According to Refinitiv, commodity ETF assets on the LSE stood at about £8.1 billion in June 2023, about 10% of the overall ETF market traded on the exchange.

How to invest in ETFs?

The most covenient way to access a range of ETFs tends to be via an online investment platform. They can also be bought directly from fund providers, via a financial advisor who specialises in investing, or through a robo-advisor, a half-way house between going it alone and paying for full-blown investment advice.

Before signing up to a particular platform provider, it’s worth considering a platform with the widest spread of appropriate ETF choices for your needs, ideally, at the most competitive price (see below).

What do ETFs cost?

Tax treatment depends on one’s individual circ*mstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.

Investors buying ETFs via an online investing platform usually face two fees: an annual fund charge from the fund provider (charged as a percentage on the amount being invested), plus platform provider fees, which come in a variety of guises. These might be billed on a ‘per transaction’ basis, or linked to the size of a portfolio.

A £1,000 investment in a fund that charges 0.5% annually would cost £5.

Generally speaking, investors will also have to pay a trading fee when buying or selling ETFs. This typically works out to between £5 and £10, in addition to any annual platform fee charged by the provider concerned.

As with individual stocks and shares and other types of fund, it is possible to hold ETFs within a tax-protected product such as an individual savings account or ISA. Doing this shields the investor from paying income tax on dividends or capital gains tax on profits.

As an enthusiast and expert in financial markets and investment products, I bring a wealth of knowledge to the discussion on commodity ETFs. My experience is grounded in a deep understanding of various investment instruments, including exchange-traded funds (ETFs), and I can provide valuable insights into the concepts covered in the article.

Firstly, let's delve into the specific commodity ETFs mentioned in the article:

  1. Invesco Physical Gold Exchange-Traded Commodity:

    • Fund Size: $14.8 billion
    • Fund Type: ETC (Exchange-Traded Commodity)
    • Benchmark: LBMA Gold Price PM (London Bullion Market Association Gold Price Post Meridiem)
    • Key Features: This fund offers exposure to the gold price at a reasonable cost. It is physically backed by gold bullion held in JP Morgan’s London vaults, ensuring transparency and security. The long track record adds to its credibility.
  2. iShares Physical Silver Exchange-Traded Commodity:

    • Fund Size: $545 million
    • Fund Type: ETC
    • Benchmark: LBMA Silver Price (London Bullion Market Association Silver Price)
    • Key Features: Complementing gold, this fund provides exposure to physical silver with a low total expense ratio. It has a track record spanning over a decade. Silver, similar to gold, can act as a hedge against inflation and geopolitical events.

Now, let's explore the methodology behind the selection of these ETFs, as mentioned by Nick Vaill, senior investment director at Investec Wealth:

  • Preference for Physically Replicated ETFs: The emphasis is on ETFs that hold the actual assets (physically replicated) rather than relying on derivatives. This approach is considered more robust, especially during market stress, as it minimizes tracking errors around the benchmark.

  • Backing by High Caliber Firms: The selected ETFs are backed by reputable and market-leading firms with a strong track record in effectively delivering for clients. This choice emphasizes reliability and risk control.

  • Focus on Net Expected, Risk-Adjusted Returns: While cost is an important consideration, the primary focus is on achieving net expected, risk-adjusted returns. This aligns with the goal of protecting clients from inflation.

The article also provides valuable information on investment funds, exchange-traded funds (ETFs), and commodity ETFs:

  • Investment Funds: These allow investors to diversify their money across a range of holdings managed by professionals. They can include various assets such as cash, bonds, property, and shares.

  • Exchange-Traded Funds (ETFs): ETFs provide access to stock and commodities markets without requiring the skills associated with picking individual stocks. They can be passive, aiming to replicate an index's performance.

  • Commodity ETFs: A subset of ETFs focused on commodities like gold, oil, and natural gas. They allow investors to gain exposure to commodity markets without the practical considerations of owning physical commodities.

  • Physical vs. Synthetic ETFs: The distinction between physically-backed ETFs (holding the actual asset) and synthetic ETFs (using derivatives) is explained. Each has its pros and cons, such as cost considerations and tracking accuracy.

  • Exchange-Traded Commodity (ETC): Described as a commodity-focused ETF, an ETC allows exposure to a single commodity rather than a basket of commodities.

In conclusion, the insights provided in the article cover essential aspects of commodity ETFs, including fund selection criteria, characteristics of specific funds, and broader concepts related to investment funds and ETFs. This information serves as a comprehensive guide for investors looking to understand and navigate the world of commodity ETFs.

Our Pick Of The Best Commodity ETFs (2024)
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