Commodities for Every Portfolio: How You Can Profit from the Long-Term Commodity Boom

Chapter 8

Participating Through Exchange-Traded Funds

He who waits upon fortune is never sure of dinner.

—Benjamin Franklin

Exchange-traded funds (ETFs) have been used by institutions for several decades, but only recently have investors been able to take advantage of this creative investment product. Over the last several years, Barclay's Global Investors, Vanguard, and a number of different investment companies have rolled out a variety of new ETFs. Initially these funds focused solely on tracking a basket of stocks, like the Standard & Poor's (S&P) 500. More recently, however, these companies have branched out to create ETFs that track several different commodity indices, commodity stocks, single commodities, and commoditycurrencies.

ETFs provide another way to participate in the long-term commodity boom in a more active and cost-effective manner. In this chapter I look at the differences between commodity ETFs and commodity index mutual funds, the advantages that ETFs can bring to your investment portfolio, and some of the different commodity ETFs that currently are available.

A Short Introduction to Exchange-Traded Funds

Even though ETFs are mentioned relatively frequently in the investment world, most people are still not clear on how these vehicles work or the advantages they can bring to a portfolio. Perhaps this has to do with the fact that there are so many differences among the various ETF products. For instance, not only are there hundreds of different ETFs, but they ...