In Focus: Passive Investing  

Q&A: How investors are using commodity ETFs

The true value-add comes when ETF providers partner with industry experts to offer all the benefits of active management within a systematic, and transparent ETF. 

FTA: How can investors square ESG concerns with commodity based investments?

MT: Certain physically backed commodity products, particularly in the precious metals sector, now follow responsible sourcing guidelines. This offers a cushion of comfort for investors with regards to their physical commodity holdings.

If investors take a holistic view of commodities and consider the end use, it may become easier to square ESG concerns. For example, the energy and transportation sectors collectively account for nearly three quarters of the world’s greenhouse gas emissions.

The use of green commodities, such as copper, in the electrification of transport and transition of the power sector towards renewables is enabling the push towards a greener world. 

FTA: What are the top 5 most popular commodity ETFs, and what are the most popular commodities to be exposed to?

MT: Top commodity exchange-traded products in the world by assets are dominated by gold but also feature silver and broad commodities.

Gold products [as an investment] have generally been around for longer than other commodities and the asset class continues to make a case in strategic asset allocation due to its diversification benefits. 

Increasingly, however, attention is drawing towards industrial metals that stand to benefit from emerging technological trends.

The push towards green energy is expected to favour metals including copper, nickel, aluminium, tin, and zinc. These commodities are redefining themselves as ‘thematic’ (aligned with long term themes) rather than cyclical (merely linked to the economic cycle). 

FTA: Which geopolitical trends have the potential to act as head or tailwinds for ETFs’ popularity over the next three to five years?

MT: Digital assets are quickly moving from the peripheries into the mainstream of investing. As the adoption of digital assets accelerates around the world, exchange-traded products are likely to benefit due to the innovation and ease of access they offer in this space.