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ETF Market. Latest Articles. What is an ETF? Exchange-traded commodities: What is an ETC? How do ETCs work? Exchange-traded commodities, in short ETCs, offer the possibility to invest in single commodities and precious metals with ease.
The performance of an ETC is based either on the spot price price for the immediate supply or the future price price for the supply in the future of a single commodity or a basket of commodities. However, in most European countries there is no ETF that represents the performance of a single commodity.
This is because an ETF must always be diversified. If you want to invest only in a commodity, you must buy an ETC. There are ETCs exchange-traded commodities for precious metals, industrial metals, oil, natural gas, soft commodities and livestock. But there is an important difference: the capital invested in an ETC is not a fund asset that is protected in case of insolvency of the issuer. Issuers rely on different methods of collateralisation for the minimisation of this risk.
Exchange-traded fund ETF vs. So physical gold bars are stored in the treasury of a trustee as security in case of physically secured gold ETCs. The issuer risk is thereby eliminated in the case of physical ETCs. Physically backed ETCs are also available for some industrial metals , such as copper or nickel. However, the collateral here is not in the form of precious or industrial metal stocks, but in the form of cash investments or securities with top credit standing.
Commodity ETCs on futures: rolling profits and losses possible Commodity ETCs for oil, natural gas or soft commodities basically represent the performance of the underlying futures market. Since the futures have only a limited life, the ETC issuer must sell these regularly before maturity and buy new futures.
Depending on whether the acquired futures are more cost-effective or more expensive, rolling profits or losses are realized. This means that you should consider the situation in the futures market in addition to the general market trend for commodity-ETCs since the rolling profits and losses can have a severe effect on the performance of ETCs.
You can find out more about this topic in our article Commodity investing with ETFs. Related articles on ETF basics. Search by topic. Latest articles. Popular articles. Become an ETF expert with our monthly newsletter. Select your domicile. Private Investor, Germany. Institutional Investor, Germany.
Private Investor, Austria. Institutional Investor, Austria. Private Investor, Switzerland. Institutional Investor, Switzerland. United Kingdom. Private Investor, United Kingdom. Institutional Investor, United Kingdom. Private Investor, Italy. Institutional Investor, Italy.
Private Investor, France. Institutional Investor, France. Private Investor, Spain. Institutional Investor, Spain. The yearly returns below show there are minimal performance differences between the two, against the benchmark. Annual Returns. There may be one that consistently performs better than its peers, or that has a lower expense ratio which helps boost returns. Other factors, such as volume , should also be considered. While a fund may track its index very closely in theory, if the investment vehicle has little volume it will be hard to enter and exit positions especially large ones at efficient prices, and that could have a negative impact on personal returns.
Prospectuses for these types of products are typically long but should be read, so all risks are known before investing. One product is not necessarily better than another; rather investors should compare any investment opportunity to similar-type investments before choosing the best one for them. An ETC is a debt note, backed by an underwriter, which then collateralizes the note with buying the commodity. Investors will often find little difference between the various types of exchange-traded products, but a bit of research before investing may reveal one product does have a slight advantage over another.
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