ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Commodity ETFs
  2. How Smart Beta Works for Commodity ETFs – Part 3
Commodity ETFs
Share

How Smart Beta Works for Commodity ETFs - Part 3

Justin KuepperDec 20, 2016
2016-12-20

Smart beta exchange-traded funds (ETFs) have become a staple in many portfolios. While many investors are focused on smart beta equity ETFs, these funds target many different asset classes with strategies designed to reduce risk and/or enhance returns.

Smart beta commodity ETFs, for example, let investors tap into sophisticated strategies designed to improve risk-adjusted returns compared to traditional index-based commodity ETFs.

In this article, we’ll look at smart beta commodity ETFs, how they compare to traditional funds and other important considerations for investors.

Commodity Smart Beta ETFs

Most commodity ETFs provide exposure to commodities through futures contracts or – in some cases – physical assets. The most popular underlying index for commodity ETFs is the S&P GSCI, which is production-weighted to represent the global commodity market. The problem with this approach is that it overweights certain commodities, such as crude oil (~50%), and underweights other commodities, like wheat and corn (< 7%).

Contango presents another problem with conventional commodity ETFs that use futures contracts. When a market is in contango, the futures price of a commodity is greater than the market price of the commodity. Commodity ETFs that only own futures contracts in the current month risk losing money when markets are in contango since they must buy higher priced futures contracts and sell cheaper spot month contracts.

Smart beta commodity ETFs enable investors to adjust their exposure to commodities beyond the simple production-based approach and address contango. For example, the Greenhaven Continuous Commodity ETF (GCC A) equally weights 17 different commodities to provide exposure to all of them, while others have rolling futures contract strategies. These twists on traditional weighting could help improve returns and/or limit risk.

Some of the most popular smart beta commodity ETFs include:


Content continues below advertisement

NameTicker SymbolExpense RatioStrategy
Greenhaven Continuous Commodity ETF(GCC A)0.85%Equal weighting of a basket of 17 commodities.
PowerShares DB Commodity Tracking ETF(DBC A)0.93%Production-based weighting with caps on energy, while mitigating contango.
United States Commodity Fund(USCI B)0.80%Equal weighting of the top seven commodities based on price momentum.
GS Connect S&P GSCI Enhanced Commodity TR Strategy ETN(GSC C+)1.25%GSCI weighting with a modified futures contract rolling schedule to mitigate contango.
iPath Pure Beta Broad Commodity ETN(BCM B-)0.70%Five sectors and ten commodities with a unique roll structure to mitigate contango.
iShares Commodity Optimized Trust(CMDT C+)0.75%Basket of 20 commodities in a way that minimizes backwardation and contango.
Credit Suisse X-Links Commodity Rotation ETN(CSCR )0.85%Equal weighting of eight commodities with the most backwardation (e.g. have the most scarcity).

How Do They Compare?

The most popular commodity ETF benchmark is the iShares S&P GSCI Commodity-Indexed Trust ETF (GSG B+) that uses the S&P GSCI as its underlying index. In the chart and table below, we compare this benchmark ETF with smart beta commodity ETFs to see how their performance compares over multiple time periods.

iShares S&P GSCI Commodity-Indexed Trust ETF
Source: Google Finance

Ticker1-Year3-Year5-Year10-Year
(GSG B+)-3.80%-22.26%-15.08%-10.04%
(GCC A)3.70%-9.18%-9.12%N/A
(DBC A)7.19%-15.83%-11.26%-4.52%
(USCI B)1.98%-9.24%-7.07%N/A
(GSC C+)1.24%-21.76%-15.03%N/A
(BCM B-)6.80%-12.09%-9.68%N/A
(CMDT C+)6.91%-11.25%N/AN/A
(CSCR )9.21%-10.62%N/AN/A

In addition to total returns, investors should consider risk and volatility factors when making decisions. The high energy industry exposure of GSCI-weighted ETFs may be great when crude oil prices are on the rise, but they expose investors to far greater risk to crude oil prices than equal-weighted funds. These dynamics are apparent in the chart above where GSG underperformed equal weight alternatives like GCC during the 5-year period.

The Bottom Line

Commodities represent an area of the market where smart beta ETFs could deliver exceptional value to investors. Investors may want to consider using ETFdb’s ETF Screener to identify smart beta alternatives to conventional commodity ETFs to mitigate contango and increase diversification. Of course, investors should also consider several other factors before purchasing these ETFs, such as their often higher expense ratios.

Further Reading
For more information, see the following resources.

  • How Smart Beta Affects Other Asset Classes – Part 1
  • How Smart Beta Works for Fixed Income ETFs – Part 2
  • How Smart Beta Works for Real Estate ETFs – Part 4

For a complete list of smart beta ETFs, see ETFdb’s Smart Beta ETFs list.

» Popular Pages

  • Tickers
  • Articles

Jan 27

ETF Issuer League: JPMorgan ETFs Almost $100 Billion

Jan 27

Main Management Market Note: January 27, 2023

Jan 27

As Recession Signals Grow, Turn to Risk-Managed ETFs

Jan 27

HGER Acts as a Compelling Solution for Inflation

Jan 27

Mutual Fund-to-ETF Conversions: The Future in 4 Charts

Jan 27

American Century ETF Duo Hits Key Buy Signals Friday

Jan 27

ACES and AMLP Aid Investing in the Energy Transition

Jan 27

Target Long Duration, High Quality Fixed Income

Jan 27

The Sharpe-r Way to Invest

Jan 27

Structure Matters: Volatility May Make 60/40 Unclear

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

VGT

Vanguard Information...

SMH

VanEck Semiconductor ETF

XLK

Technology Select Sector SPDR...

VTI

Vanguard Total Stock Market...

SOXX

iShares Semiconductor ETF

BLOK

Amplify Transformational Data...

META

Roundhill Ball Metaverse ETF

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X