In a world of rising inflation and ultra-low interest rates, we're often told that commodities can be some of the best plays. Whether it be...
If you're looking to get exposure to precious metals or other commodities, commodity ETFs can be the best route to go. Why?
Buying individual commodities can be somewhat tricky, especially when we get into the idea of commodity futures. Commodity markets are complex, and should only really be utilized by Canadian investors who knows the ins an outs of futures contracts.
The fact you can gain single-click exposure to pretty much any precious metal or commodity you want with on the Toronto Stock Exchange with an exchange-traded fund has made commodity-based Canadian ETFs extremely popular.
In this article, we're going to list some of the top commodity ETFs in the country, and we'll try to cover the widest scope possible so it will likely include the commodity you're looking for. If ETFs is your game also don't miss our piece on Canada's top preferred share ETFs here.
With that being said, let's get right into it.
What are the best Canadian commodity ETFs to buy today?
- The iShares S&P/TSX Capped Energy Index ETF (XEG)
- Horizons Crude Oil ETF (HUC)
- iShares S&P/TSX Global Gold Index ETF (XGD)
- iShares Gold Bullion ETF (CGL, or CGL.C)
- Global X Silver Miners ETF (ARCA:SIL)
- Sprott Physical Silver Trust ETF (PSLV)
- iShares Global Agriculture Index ETF (COW)
- Global X Uranium ETF (URA)
- Sprott Physical Uranium Trust (U)
- Aberdeen Standard Physical Precious Metal Basket ETF (GLTR)
The top commodity ETFs when it comes to oil and gas
The iShares S&P/TSX Capped Energy Index ETF (XEG)
The good news for investors is that gaining exposure to the Canadian oil and gas sector is easy with XEG. The goal of this commodity ETF is to provide long-term capital growth by replicating the returns of the TSX Capped Energy Index.
This iShares ETF contains some of the largest oil and natural gas producers on the planet, including Canadian Natural Resources, Suncor Energy, Tourmaline Oil, Imperial Oil, and Cenovus Energy. Keep in mind however, the fund does have some concentration risk, with nearly 50% of its funds allocated to Canadian Natural Resources and Suncor Energy.
The fund is one of the largest on this list, with assets under management of over $1.9B. It currently yields in the 4% range, however with the pace of cash flow generation we're seeing from oil and gas producers, I'd expect this distribution to be higher moving forward.
Its management expense ratio (MER) is a little high for a passively managed index fund at 0.61%, but considering the potential this ETF has moving forward, $6.10 per $1000 invested is not the end of the world.
In terms of performance, it's been extremely lackluster. The fund has 10 year annualized returns of 2.46%. However, commodity ETF's are a bit of a different beast. Returns must be narrowed down to bull/bear environments specifically to see how a fund is performing. And, when we look to 3 year returns of 60% annually, the picture looks brighter.
Who this commodity ETF is for: Those who are looking to get exposure to the major oil and gas producers here in Canada.
What to expect from XEG: Expect this ETF to follow the ebbs and flows of crude oil, with a little more volatility. Because it holds oil producers, it is likely to fluctuate in price more than crude itself.
Horizons Crude Oil ETF (HUC)
For someone looking for more direct exposure to the price of oil rather than through producers, the Horizons Crude Oil ETF is a great option.
It aims to track the performance of the Solactive Light Sweet Crude Oil Winter MD Rolling Futures Index. The fund is hedged, and historically it has tracked the price of WTI crude with high accuracy.
The ETF seems to be suited for short term holds to benefit from the rising price of oil, as over the long term there is some underperformance versus its benchmark. If we span out 10 years, the fund has gained 0.07% annually versus losses of 2%+ for the Solactive Index.
The management fee comes in at 0.61%, meaning you'll pay $6.10 per $1000 to invest.
Who this commodity ETF is for: Those who are looking to get direct exposure to the price of oil instead of buying oil producers or an oil producer ETF.
What to expect from HUC: Certainly not a long-term hold. In order to outperform, one would likely have to time the ebbs and flows of crude.
Top commodity ETFs when it comes to gold
iShares S&P/TSX Global Gold Index ETF (XGD)
If you're looking to track the entire gold industry, the iShares Global Gold Index ETF is going to be one of the better routes to go.
The fund has just shy of 50 holdings and contains some of the largest gold producers in the world like Newmont Corp, Barrick Gold, Franco-Nevada, Agnico Eagle Mines, Kinross Gold, and Yamana Gold.
In terms of assets under management, they come in at $1.2B and at the time of writing the fund has a distribution in the 1.6% range. With an expense ratio of 0.61%, you'll pay $6.10 per $1000 invested on an annual basis.
The fund is heavily invested in its top 5 holdings, as they make up over 55% of the fund. At the time of writing, Newmont Gold is the largest holding by far, with over 16.5% exposure.
In terms of performance, much the same as XEG, long-term numbers don't mean much in cyclical industries. For example, this ETF lost 47% in 2013 during the gold bear market but gained over 62% through 2019 and 2020 as gold began to rise.
In terms of performance, because this fund contains gold producers, it will likely outperform the price of gold during bull markets, and underperform during bear markets.
Who this commodity ETF is for: Those who want exposure to companies that mine gold, and not direct exposure to gold itself.
What to expect from XGD: It will likely outperform during rising gold prices, and underperform during falling prices. Expect this fund to be more volatile than direct exposure to gold.
iShares Gold Bullion ETF (CGL, or CGL.C)
First things first, the difference between these two tickers is that CGL.C is not hedged, while CGL is. If you'd like to know the difference between these, check out our article on hedged vs unhedged ETFs.
But, this is a relatively simple ETF. It contains no gold producers, and its main objective is to replicate the price movements in gold bullion.
The fund has just under $780M in AUM at the time of writing and has fees of around $5.60 per $1000 invested.
There's really not much else to say about this ETF. With the fluctuations in currency over the last decade, the unhedged version has outperformed both the hedged and the price of gold by a wide margin. So, depending on which way you think the Canadian dollar will move relative to the US Dollar, that will impact your decision.
Who this commodity ETF is for: Those who want direct exposure to gold bullion and not gold producers.
What to expect from CGL: For the hedged version, simply tracking the price of bullion to the closest extent possible. For the unhedged version, you could see some short-term volatility because of currency movements, either to your benefit or detriment.
Top commodity ETFs when it comes to silver
Global X Silver Miners ETF (ARCA:SIL)
Silver is when it gets a bit tricky for those looking for a producer ETF here in Canada. There simply isn't enough producers here in Canada to build up an ETF that would garner any large interest.
We do have to head south of the border and look at SIL. But, the good news is this ETF is still top heavy with Canadian silver producers, as Wheaton Precious Metals, Pan American Silver Corp, and SSR mining are all in the top 5 holdings, with Wheaton making up over 40% of the ETF.
The fund aims to replicate the performance of the Solactive Global Silver Miners Index, and it has AUM of just over $1B at the time of writing. The fund contains over 37 silver producers, but is heavily concentrated in Wheaton Precious Metals, Korea Zinc, and Pan American Silver Corp, which make up over 40% of the fund.
The fund has fees of 0.65%, making it one of the more expensive on the list. And, in terms of performance, it is much the same as many other commodity ETFs. It has boomed when the price of silver has been rising, but over the long term, it has near double digit annuazlied losses.
It does pay one of the lower dividends on the list as well, at 0.43%. It's important to note with this one holding underlying international companies that there may be tax implications, which are important to consider.
Who this commodity ETF is for: Those who don't want direct exposure to silver itself, but instead companies that mine, explore for, and sell silver.
What to expect from SIL: Expect this ETF to be more volatile than silver itself, on both the upside and downside.
Sprott Physical Silver Trust ETF (PSLV)
If you're looking to hold silver directly, you'd be hard-pressed to find a better option than Sprott's Physical Silver Trust.
One interesting thing about this trust is the fact you can redeem your units for actual silver. Now keep in mind, there are some conditions that need to be met in this regard, such as holding a minimum amount of units, so make sure to read the prospectus and the fact sheet.
Sprott's silver is held in custody with the Royal Canadian Mint, and it is one of the largest commidity ETFs on this list with assets under management of more than $4B. The fund does not invest in certificates or any other instruments that require the delivery of silver. It simply holds silver itself.
There is no distribution on the fund, as there are no underlying producers to pay one out to investors. So, this is a pure play on the price movement of silver. Fees come in at $6.20 per $1000 invested, and in terms of performance, I really wouldn't put much weight into it. You are buying this based on the future potential movement in silver, so past results are irrelevant.
Who this commodity ETF is for: Those who want direct exposure to the price of silver, instead of purchasing silver producers.
What to expect from PSLV: To track the price of silver, after fees and expenses of the fund itself.
Top commodity ETFs when it comes to agriculture
iShares Global Agriculture Index ETF (COW)
Although this ETF is Canadian, there contains next to no exposure to the Canadian agriculture industry. In fact, it has around 93% exposure to the United States and only around 3% to Canada. However, it's still a solid ETF if you're looking to gain exposure to products like fertilizers, chemicals, farm machinery sales, packages goods and foods, meats and much more.
The ETF is an index fund, aimed to track the Manulife Asset Management Global Agriculture Index. Its largest holding is Archer Daniels Midland, which is a $42B~ enterprise that produces oilseeds, corn, wheat, and other agriculture commodities.
The ticker is COW, but it's important to not mix this ETF up with the iPath Livestock ETF. Make sure you search for COW.TO.
With 10 year annualized returns of 10%, the fund's performance has been outstanding. But despite that, it's not all that popular. With a NAV of $63~ at the time of writing and assets under management of only $430M, its one of the smallest funds on this list.
This isn't a physical commodity ETF. It instead invests in companies that produce agriculture products. If we were to list physical agriculture ETFs, we'd be here for quite some time. If you're looking for a particular commodity like wheat or corn to trade, do a quick Google search for a more niche-based ETF.
Who this commodity ETF is for: Those who want exposure primarily to the US agriculture industry.
What to expect from COW: To grow in line with the agriculture industry, which is expected to boom as populations rise.
The top commodity ETFs when it comes to uranium.
Global X Uranium ETF (URA)
Much like silver, there just isn't enough producers here in Canada to warrant a Canadian based ETF. So, if we want exposure to uranium producers, we have to head down south and look at the Global X Uranium ETF.
However, just because it's a US ETF doesn't mean it doesn't have exposure to solid Canadian companies. In fact, Cameco, a Canadian uranium producer, is the largest holding inside of the fund at allocations in excess of 25%.
Other notable Canadian companies are NexGen Energy, Denison Mines, Energy Fuels, and Global Atomic Corp. But, most all of these companies will have mid to low single digit weightings inside of the fund.
With the recent surge in the popularity of uranium, volume has spiked on this commodity ETF and it now trades in excess of 1.5M shares per day. It costs $6.90 per $1000 in fees and it has a net asset value of just over $18.80 at the time of writing.
Keep in mind, the majority of this fund (around 80%) is invested in American and Global Depository Receipts, meaning some of the shares are held in trust.
The funds distributions are very sporadic, so this won't be an ETF that provides any sort of consistent passive income stream. But, it can still pay out some hefty distributions, so that is one thing to consider.
Who this commodity ETF is for: Those who want exposure to companies mining, exploring for, and selling uranium.
What to expect from URA: Sporadic distributions depending on the underlying companies results, along with volatility based off the price of uranium.
Sprott Physical Uranium Trust (U)
The Sprott Physical Uranium Trust is a fund that invests in uranium-based assets, including uranium oxide and uranium hexafluoride.
The fund's main objective is to provide a more secure investment for those who are looking to hold uranium directly, rather than expose themselves to the operating results of uranium producers.
This is the world's first ever uranium trusts, and it's the newest fund on this list, debuting in early July 2021. With the interest in uranium soaring, the fund already has over $4B in assets under management. It also has the lowest fee on this list, as it only costs $3.50 per $1000 on an annual basis.
The fund currently holds over 44 million pounds of uranium with a value of over $2B. Trading volume is still relatively low at 17,000 shares a day, but should pose 0 issue to the typical retail investor.
Who this commodity ETF is for: Those who want direct exposure to the price of uranium.
What to expect from URA: To track the price of uranium as close as possible, net of fees.
BONUS: An all in one precious metal ETF
Aberdeen Standard Physical Precious Metal Basket ETF (GLTR)
Keep in mind, this isn't exactly a Canadian ETF as it does trade in the United States. But, for many who want an "all in one" solution when it comes to diversification with precious metals, this one is worth a look.
This fund has only 4 holdings, and is primarily a gold play. But, it does have exposure to 3 other metals, being silver, palladium, and platinum.
In terms of exposure, at the time of writing around 60% is weighted to gold, 25.6% to silver, 9% to palladium, and 4% to platinum.
The fund has management fees of 0.6%. So, you'll pay $6 per $1000 invested. Considering this gives you one click exposure to some of the most popular precious metals in the world, it's not an outrageous fee to pay.
The fund has just over $1B and daily volume in excess of 45,000 shares a day. So, you should have no problem buying in and out of this commodity ETF.
Who this commodity ETF is for: Those who want direct exposure to some of the worlds most popular precious metals.
What to expect from URA: To track the price of gold primarily, but the 3 other metals in the portfolio as well.
Overall, the options when it comes to commodity ETFs are endless.
We've highlighted ten different ETFs that can get you exposure to oil, natural gas, gold, silver, agriculture, uranium, platinum, and palladium. However, there are many more commodities out there, and if we were to have all of them on this list it would be never-ending.
So, first decide whether or not you want an equity ETF, which would be companies that produce, explore for, and sell the underlying commodity, or whether or not you want exposure to the metal directly.
From there, you can at least weed out the majority of commodity ETFs and point your focus to the one that makes the most sense for you.
If you'd like another commodity to be added to this list, simply shoot us an e-mail and we will try to accommodate!