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Best ASX Commodity ETFs 2023: Guide to Top Performers

By SMSF Mate
- Updated Nov 13, 2023 at 11:46 AM

What are the best Commodity (ETF) to invest in Australia?

The top-performing ETF in Australia for 1 year based on 1 Year return is outlined in the table below.

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How Australian commodity ETFs work

Australia’s commodities industry is a large part of its economy and presents an excellent opportunity to invest in commodities such as precious metals, agricultural commodities, crude oil futures, energy such as oil or natural gas, physical gold and the commodity asset class generally. There are several ways to invest in commodities listed trade futures, on the Australian exchange, the easiest and most inexpensive is using commodity ETFs.

Investing directly in a particular commodity through exchange-traded futures can be both impractical and expensive, as the futures contracts usually assume you want to take delivery of the underlying commodity in the futures markets. The trader is expected to take delivery of the physical commodities with futures contracts, there exists some counterparty risk for longer-dated contracts although this is usually insured by the clearing house.

Why buy commodity ETFs?

Many investors choose to gain exposure to other asset classes through commodities ETFs to create a more diversified portfolio, the best commodities ETFs historically demonstrate a low correlation with other major asset classes, such as cash, fixed income and equity markets.

Apart from Commodities Futures exposure, many commodities ETFs have several relevant commodity themes you gain exposure to such as commodity indexes (Bloomberg Commodity Index), industrial metals, raw materials, soft commodities, natural gas, physical precious metals, energy and companies involved in mining the relevant physical commodity itself (commodity stocks).

ETFs offer investors a variety of opportunities to trade in commodities futures while learning to invest in derivatives or underlying assets. It is a major draw to commodity ETFs because they have high liquidity securities available at stock exchanges including the ASX.

Advantages of Investing in Commodity Exchange Traded Funds (ETFs) compared to trading the physical commodity or trading futures contracts

  • Diversification: Commodity prices tend to have a low correlation with prices of the other asset classes.
  • Inflation hedge: When the price of goods and services are rising, commodity prices are also generally rising so commodity ETFs generally provide a hedge against rising inflation and inflation risk.
  • Convenience: as the typical method for investment is typically to trade commodity futures contracts or enter swap contracts which are more difficult to understand – investing in a simple ETF listed on an exchange provides a simple way to access the underlying commodities without having to trade the actual commodity futures.

Notable Australian exceptions for Australian Commodity ETFs

The Australian ETFs do not have specific commodity futures contracts ETF such as Heating Oil or Natural Gas futures contracts, however, these are more common in overseas markets such as the United States where the physical commodities futures markets there are much larger.

What is the best index to track Australian commodities?

If you’re an investor interested in Australian ETFs and looking to track the performance of commodities, there are a few key indices to consider. One of the top choices is the S&P/ASX All Ordinaries Gold Index (XGD), which specifically focuses on gold-related companies listed on the Australian Securities Exchange (ASX). This index serves as a reliable benchmark for monitoring the Australian gold sector, including companies involved in exploration, mining, and production.

For a broader exposure to commodities, including a diverse range of sectors, the S&P/ASX All Ordinaries Resources Index (XJR) is worth exploring. It encompasses not only mining and materials companies but also those involved in energy and related industries. By tracking this index, you can gain insights into the performance of various commodities beyond just gold.

When it comes to investing in commodity futures and Australian ETFs, understanding the right index to monitor is crucial. By aligning your investment strategy with these well-regarded indices’ best commodity moves, you can make informed decisions and stay updated on the performance of the commodities market in Australia.

  • BetaShares Crude Oil Idx ETF (OOO) : Is an ETF that provides a way to gain exposure to the currency-hedged price of the West Texas Intermediate (WTI) crude oil futures contract - one of the most heavily traded energy commodities. It has a net asset value of $224M and an expense ratio of 0.69% p.a. WTI is the underlying commodity of the New York Mercantile Exchange (NYMEX) oil futures contract and like Brent crude is classified as a light and sweet crude oil. This is the Australian-listed equivalent of the United States Oil Fund LP (USO) which is the largest traded commodity ETF in the world.
  • ETFS Physical Silver ETF (ETPMAG): Although a lot smaller, the ETFS Physical Silver ETF (ETPMAG) resembles in most ways the ETFS Physical Gold ETF. The SLV is an ETF for physical commodities, tied to Silver rather than Gold however the structure is fairly similar.
  • ETFS Physical Precious Metals Basket ETF (ETPMPM): ETPMPM is another precious metals commodities ETF that provides exposure to the metals used in many of our modern technologies, from the smartphones in our hands to solar panels powering buildings. ETPMPM provides an easy way to invest in precious metals as a broad asset class.
  • VanEck Vectors Gold Miners ETF (GDX): GDX is another Gold ETF that seeks to replicate the price and yield performance of the NYSE Arca Gold Miners Index, which intends to track the overall price of companies mining for Gold.
  • VanEck Vectors Australian Resources ETF (MVR): MVR gives investors exposure to a diversified portfolio that aims to closely track the returns of the MVIS Australia Energy & Mining Index, the underlying assets are all ASX-listed securities.
  • VanEck Vectors Agribusiness ETF (MOO): MOO is an agricultural products ETF, that provides one-trade access to commodities agribusiness, an industry driven by increasing populations and demand for alternative fuels. The fund aims to track the overall performance of companies involved in agricultural commodities, agri-chemicals, animal health, fertilisers, seeds, farming, aquaculture, livestock, cultivation and plantations.

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