Commodity exchange-traded funds (ETFs) provide exposure to metals, energy, and agricultural products without the hassle of direct ownership. While gold and silver can be stored, commodities like oil, natural gas, and wheat are harder to hold—making commodity ETFs a practical solution.
These ETFs offer diversification thanks to their low correlation with stocks and bonds, like some popular index funds, and can hedge against inflation, as commodities often rise in value when prices increase. However, they’re also fairly volatile, influenced by supply and demand, geopolitical events, and economic conditions.
With popular options tracking gold, crude oil, and natural gas, commodity ETFs make it easy to invest in this dynamic asset class. Here's what you need to know.
4 commodities ETFs to invest in 2025
When investing in commodity ETFs, it’s important to choose funds that offer broad diversification across multiple sectors like metals, energy, and agriculture while keeping costs low.
For this list, we screened for ETFs that provide exposure to a wide range of commodities rather than focusing on a single asset like gold or oil.
We also prioritized funds that don’t require a K-1 tax form, which is commonly issued by partnership-structured ETFs. K-1s can complicate tax filings and cause delays compared to standard 1099 forms, making them less convenient for individual investors.
Commodities
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)
The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC -0.98%) tracks the DBIQ Optimum Yield Diversified Commodity Index Excess Return, providing exposure to 14 heavily traded commodities across energy, precious metals, industrial metals, and agriculture. The fund includes gasoline, Brent crude, NY harbor ULSD, WTI crude oil, natural gas, gold, corn, soybeans, wheat, sugar, zinc, aluminum, copper, and silver futures.
What sets this Invesco ETF apart is its optimum yield strategy, which helps manage roll yield -- the impact of replacing expiring futures contracts with new ones. By selecting contracts with the best price curve positioning, the fund aims to reduce the negative effects of contango, where later-dated futures contracts are more expensive than near-term ones, eroding returns over time.
With an expense ratio of 0.59%, the fund is fairly affordable for a commodity ETF. However, it's not the most tax-efficient choice, since it tends to pay large capital gains distributions in December that can lead to unexpected tax liabilities for investors in taxable accounts.
Direxion Auspice Broad Commodity Strategy ETF (COM)
Commodities are known for their volatility, with prices often making sharp moves up or down and staying there for extended periods. This makes commodity markets highly cyclical, where long periods of growth can be followed by sudden downturns, creating challenges for buy-and-hold investors.
The Direxion Auspice Broad Commodity Strategy ETF (COM -1.30%) is designed to manage this volatility by tracking 12 key commodities across agriculture, energy, and metals. The fund holds corn, cotton, soybeans, sugar, wheat, crude light, heating oil, natural gas, RBOB gasoline, gold, copper, silver.
What makes this Direxion fund different from most commodity ETFs is that it’s not restricted to a long-only strategy. If the trend turn unfavorable, the fund can go flat by holding Treasury bills instead of staying invested in declining commodity futures. This dynamic approach aims to improve risk-adjusted returns by reducing drawdowns during commodity downturns.
With a 0.70% expense ratio, this ETF is slightly more expensive than some peers, but its strategy has delivered strong performance, with a 10.81% annualized return over the past five years.
Related investing topics
Should I invest in commodities ETFs?
Commodity ETFs can be valuable portfolio tools, but whether they’re right for you depends on your investment approach. There are two primary ways to use them.
The first is as a trading tool -- actively speculating on commodity price movements. This requires daily monitoring and a strong understanding of commodity cycles, as prices can be highly volatile. Traders often use leveraged or futures-based ETFs to capture short-term price swings, but these require careful risk management.
The second is for diversification -- allocating around 20% of a portfolio to commodities and rebalancing periodically. Since commodities have a low correlation to stocks and bonds, they can help stabilize a portfolio, especially during inflationary periods or market downturns. In 2022, for example, commodities rallied while both stocks and bonds declined, making them an effective hedge.
However, commodities can also experience steep losses when trends reverse, such as the collapse in oil prices during the COVID-19 pandemic. Additionally, many of these ETFs rely on futures contracts, which can lead to large end-of-year capital gains distributions, creating tax inefficiencies for investors in taxable accounts.
For those who understand the risks, tax implications, and market drivers, commodity ETFs can be a powerful tool -- but they require careful consideration before adding them to a portfolio.
