Commodity ETFs Navigate Choppy Seas

After years of disappointing returns, is the asset class ready for a comeback?

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

[This article appears in our May 2018 issue of ETF Report.]

With all the attention on stocks and bonds this year, you wouldn’t be blamed for forgetting about commodities. There’s been a headline or two about oil, aluminum and gold, but for the most part, the asset class remains under the radar for investors.

That’s understandable—in recent years, returns for commodities have been paltry compared to stocks and bonds. For example, last year, the average broad commodity ETFs had a return of 4.4%, well below the 22% advance for the SPDR S&P 500 ETF Trust (SPY) and not much better than the 3.6% gain for the iShares Core U.S. Aggregate Bond ETF (AGG).

Over the past five years, the difference is even more stark, with broad commodity ETFs down an average of 40%, compared to gains of 107% and 11% for SPY and AGG, respectively.

That said, as the old market adage goes, past performance is no guarantee of future results. As poorly as commodities have done in recent years, so far in 2018, they’re doing quite well, and some analysts believe their outperformance can continue.

Modest Gains

A look at year-to-date performance for broad commodity ETFs in 2018 reveals that over half the funds are up. Gains are modest, only a percent or two, but that beats equities, which were down 0.1% as of the end of the first quarter, and bonds, which were down 1.8% in the same period.

The $115 million GS Connect S&P GSCI Enhanced Commodity TR Strategy ETN (GSC) and the $32 million iPath S&P GSCI Total Return Index ETN (GSP) were the best performers so far this year, with gains of 3% and 2.6%, respectively.


Top 5 Commodity ETFs
FundTickerQ1 Performance
iPath Bloomberg Cocoa Subindex Total Return ETNNIB38.2
iPath Pure Beta Cocoa ETNCHOC35.0
iPath S&P GSCI Crude Oil Total Return ETNOIL11.8
DB Crude Oil Long ETNOLO11.3
Credit Suisse X-Links WTI Crude Oil ETNOIIL10.3

Note: Data measures Q1 performance and excludes leveraged and inverse ETPs


On the other hand, the $171 million ETFS Bloomberg All Commodity Strategy K-1 Free ETF (BCI) and the $1.1 billion iPath Bloomberg Commodity Index Total Return ETN (DJP) were among the worst performers so far this year, with losses of less than 1%.


Bottom 5 Commodity ETFs
FundTickerQ1 Performance
iPath Bloomberg Sugar Subindex Total Return ETNSGG-20.2
iPath Pure Beta Sugar ETNSGAR-15.4
Teucrium Sugar FundCANE-15.0
iPath Bloomberg Aluminum Subindex Total Return ETNJJU-14.1
iPath Bloomberg Livestock Subindex Total Return ETNCOW-11.8

Note: Data measures Q1 performance and excludes leveraged and inverse ETPs


There’s often a wide variation between the performance of various broad commodity ETFs due to different strategies and commodity weightings schemes.

S&P GSCI Outperforming

In general, ETFs that track the S&P GSCI, which is a global production-weighted index that’s heavy on energy, are doing the best this year. That outsized weighting in energy has paid off thanks to a strong 7.5% rally for WTI oil and a 12.2% jump in gasoline prices.

Meanwhile, the ETFs that track the Bloomberg Commodity Index aren’t doing as well this year due to their heavier weightings in metals, a sour spot in this year’s commodities market.

Year-to-date, aluminum is down 11.9%; copper is down 8.4%; and palladium is down 11.1%. The lone bright spot is gold, which has crept up by 1.7% so far this year thanks to rising financial market volatility.

Agriculture—the other major commodity sector—has performed solidly this year, with gains of more than 5% for corn, soybeans and wheat, as well as a spectacular 35% rally for cocoa.

Late Cycle

Looking ahead, a number of analysts see commodities continuing to outperform as the global economy enters the late cycle.

“We typically see commodities outperform stocks and other risk assets in the late stages of a business cycle,” said Maxwell Gold, director of investment strategy and research at ETF Securities. “Right when we're beginning to see capacity overshoot and we hit a slowdown in equity markets, commodities perform better.”


Additionally, many commodities are moving into backwardation—where front-month contracts are higher than subsequent contracts—which boosts returns for commodity investments, he notes.

“Even if we don't see outsized price increases in commodities, from a total return perspective, commodity returns will benefit from a change to positive roll yields based on the reshaping and structuring of the fundamental market in commodities,” Maxwell added.


CommodityQ1 Performance (%)
WTI Crude Oil7.5
Brent Crude Oil5.1
Heating Oil-2.3
Natural Gas-7.5
Live Cattle-7.5
Lean Hogs-20.2


More Upside For Oil

For investors simply looking to invest in commodities broadly—either to bolster portfolio returns or diversify—there’s about a dozen ETFs that provide that exposure, including the PowerShares DB Commodity Index Tracking Fund (DBC), the iShares S&P GSCI Commodity Indexed Trust (GSG) and the United States Commodity Index Fund (USCI), to name a few.

But for more aggressive investors, picking and choosing individual commodities or commodity sectors is always an option.

Oil is one commodity that’s done well this year and could keep climbing in the months to come. Goldman Sachs analysts forecast that Brent crude oil prices could hit $82.50 within six months, well above current levels of $68, due to much-faster-than-expected demand growth and a tight supply picture.

According to the International Energy Agency, oil inventories are expected to decline in the second, third and fourth quarters of the year.

“With supply from Venezuela clearly vulnerable to an accelerated decline, without any compensatory change from other producers, it is possible the Latin American country could be the final element that tips the market decisively into deficit,” said the IEA.

Futures-tracking ETFs like the United States Brent Oil Fund LP (BNO) should do well if the bullish scenario for oil plays out.

Tail Winds For Metals

Of the main commodity sectors, metals have fared the worst this year after a strong run in 2017. But the sector may just be taking a breather before resuming its rally, according to ETF Securities’ Gold.

In his view, copper and precious metals such as gold, silver and platinum are ripe for the picking.

Copper “has a continued tail wind behind it given the global growth of emerging markets and developed markets, the potential for increased investment in infrastructure, as well as a reduction of mining and capex on the supply side,” he said, while adding that precious metals could outperform on the back of geopolitical and financial market volatility.

The United States Copper Index Fund (CPER), the SPDR Gold Trust (GLD), the iShares Silver Trust (SLV) and the ETFS Physical Platinum Shares (PPLT) are a few of the ETFs targeting those commodities.

Ag: Mixed Bag

On the agriculture side of things, analysts see the potential for big moves in either direction, but with an upside bias. Corn and soybeans plantings are expected to be down this year from last, according to the U.S. Department of Agriculture.

A report by Reuters analyst Karen Braun suggested U.S. corn stockpiles in 2019 could easily hit a five-year low if plantings are reduced and if there’s a late start to the season amid adverse weather in the corn belt.

On the flip side, weighing on the complex more recently was news that China could slap tariffs on U.S. exports of soybeans in retaliation for potential tariffs the U.S. announced against Chinese products.

If the tariffs go through, they would mean "surplus soybeans, and lower soybean prices in the U.S.," Tobin Gorey, director of agricultural strategy at Commonwealth Bank of Australia, told Reuters.

Another commodity for which lower prices could make an appearance is cocoa. Prices for the bean are up the most of any commodity so far in 2018, but a lot of that is simply because they went too low last year, reaching a 10-year trough.

"We’ve seen cocoa prices strengthen,” Edward George, head of group research at Ecobank Transnational, told Bloomberg. “The fact is they can easily go back down again."

Contact Sumit Roy at [email protected]

Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.