A commodities index fund invests its assets in financial instruments linked to, or based on, a commodity price index, most often a futures index. These funds offer diversification away from the traditional stocks and bonds, and commodity markets tend not to correlate with equities, meaning that they fluctuate at different times, helping an investor protect their assets and keep their investments stable. Choosing the right commodities index fund can be difficult, but the top four, according to EFTdb, are the PowerShares DB Commodity Index Tracking Fund, the iShares S&P GSCI Commodity-Indexed Trust, the iPath Bloomberg Commodity Index Total Return ETN and the United States Commodity Index fund. These four are the highest performing funds, with the PowerShares fund offering a significant return.
Top 4 Commodities Index Funds:
- PowerShares DB Commodity Index Tracking Fund
- iShares S&P GSCI Commodity-Indexed Trust
- iPath Bloomberg Commodity Index Total Return ETN
- United States Commodity Index fund
PowerShares DB Commodity Index Tracking Fund
This fund has the highest current year to date return at 13.8 percent. It is linked to the DBIQ Optimum Yield Commodity Index Excess Return - a rules-based index. It covers 14 of the most important physical commodities in the world, including gasoline, corn, soybeans and gold. It fluctuates heavily, although this is normal for commodity funds. The fund also holds US Treasury securities. Invesco admits that the fund is highly volatile and not suited to all investors.
- Includes US treasury securities
- Highly volatile
- Covers 14 physical commodities
iShares S&P GSCI Commodity-Indexed Trust
This is not a standard ETF - and is not subject to regulation in the same way as mutual funds. This makes it more risky, but it can still have good returns, especially over a longer time frame to avoid the inevitable fluctuations. It is tied to the S&P GSCI Total Return Index and holds a position in a futures contract based on the value - with sectors including industrial and precious metals, agriculture, livestock, and energy. It also holds treasury bills and cash.
- Not a standard ETF
- Tied to the S&P GSCI index
- Also holds cash
iPath Bloomberg Commodity Index Total Return ETN
The iPath Bloomberg ETN is also admitted to be a high risk investment - as with all commodity funds, you should consider how much money you want to risk. Also, holders have to redeem on specific dates and have to redeem at least 30,000 ETNs of the same series. The fund covers a number of index components, which are weighted in favor of gold, natural gas and crude oil. There is no principal protection - so, again, investors should be very careful how much they invest. It can still give a good return though - depending on the global economy.
- Limited redemption
- Broad index
- No principal protection
United States Commodity Index fund
The United States Commodity Index fund tracks the SummerHaven Dynamic Commodity Index Total Return. It issues shares that are bought and sold the same as other shares - this is a government fund. It does not have as high a return as the others, but it is rebalanced monthly, uses market price signals and reflects a portfolio of 14 futures out of a “basket” of 27. The fund is designed for investors who want some commodities exposure without using a specific account, and is as flexible as an equity account.
- Equity-like flexibility
- Rebalanced monthly
- Government fund
Commodities index funds are always risky - and with the recent state of the global economy even the best performing ones are down. This might, thus, be a good time to buy in to one of these high performing funds, or put a bit of money into the United States Commody Fund on the open market.