Commodity markets have largely enjoyed a stellar ride over the last couple years, with a wide range of resources rallying amid near unprecedented demand. At the moment, however, the two commodities with what is arguably the most focus are energy and precious metals.

Although there is no shortage of explorers, miners and producers out there leveraging higher energy and precious metals prices, the decision to invest in a specific company may come with greater operational risk. No one wants to invest in the ‘underperformer’ from a sector, and that’s partly behind the surge in popularity of ETFs that track these commodities, either directly or indirectly. 

With this in mind, let’s take a look at some of the options to invest in energy and precious metals via ETFs.

 

Gold, silver and other precious metals

Unlike other commodities, the ASX plays host to a wide range of ETFs in the precious metals space, with investors spoiled for choice. In fact, the ASX was actually the first market to introduce a gold-oriented ETF back in 2003, and with the commodity near a yearly-high, interest is back in full swing.

There are options to invest directly in physical gold, through the likes of the ETFS Physical Gold (ASX: GOLD), Perth Mint Gold (ASX: PMGOLD), and BetaShares Gold Bullion ETF – Currency Hedged (ASX: QAU) – these ETFs differ by focus, so you can learn more about them here.

If physical gold doesn’t appeal to you, then the VanEck Vectors Gold Miners (ASX: GDX) and Global Gold Miners ETF – Currency Hedged (ASX: MNRS) provide exposure to gold mining stocks from across the world.

Perhaps gold isn’t doing it for you, but you’re still in the mood for something shiny? Well, you also have ETFS Physical Palladium (ASX: ETPMPD), ETFS Physical Platinum (ASX: ETPMPT) and ETFS Physical Silver (ASX: ETPMAG), which track the performance of the price of palladium, platinum and silver respectively. 

If you can’t make up your mind, you always have the option to invest in all four precious metal commodities through the ETFS Physical PM Basket (ASX: ETPMPM).

 

How to Invest in Energy and Precious Metals via ETFs

 

Oil, gas and clean energy

Energy prices are in focus at the moment amid heightened conflict between Russia and Ukraine, with crude oil reaching multi-year highs, and natural gas prices at record highs. It’s slim pickings if you are looking for oil or gas-focused ETFs on the ASX, with just the two products in the BetaShares Crude Oil Index ETF-Currency Hedged Synthetic (ASX: OOO) and BetaShares Global Energy Companies ETF (ASX: FUEL).

Like a number of other global ETFs that track oil prices, ‘OOO’ is a highly complex product that tracks an index providing exposure to WTI Crude Oil futures. It relies on a deep understanding and conviction on not just the outlook for oil prices month-to-month, but the nature of the price curve when looking at futures contracts. In contrast, ‘FUEL’ invests in the largest global energy companies outside Australia.

There are, however, far more options in this space if you look at the US for inspiration. The Energy Select Sector SPDR Fund (NYSE: XLE), targeting global oil producers, is the largest energy-oriented ETF with more than US$35 billion in assets under management, while the Vanguard Energy ETF (NYSE: VDE) offers a more concentrated focus on the US energy industry through leading names.

Elsewhere, VanEck Oil Services ETF (NYSE: OIH), boasting US$2.8 billion in net assets, tracks the largest 25 US-listed oil service companies. On the other hand, the First Trust Natural Gas ETF (NYSE: FCG), with over US$500 million in net assets, offers exposure to natural gas, albeit it is essentially a leveraged play and therefore more susceptible to market volatility.

Crude oil and natural gas are not the only areas for investing in the energy sector, with uranium having a bumper period in 2021. The Global X Uranium ETF (NYSE: URA) made headlines last year as investors piled into the fund, with assets under management swelling to over US$1.2 billion.

And of course, in the green energy space, the thinly-traded First Trust Global Wind Energy ETF (NYSE: FAN) offers exposure to the global wind power industry, while the VanEck Global Clean Energy ETF (ASX: CLNE), BetaShares Climate Change Innovation ETF (ASX: ERTH) and US-listed iShares Global Clean Energy ETF (NYSE: ICLN) offer broad-based exposure to renewables and companies developing clean energy.

 

Important ETF considerations

ETFs are not without their own risks. It is important that you consider the following when deciding if an ETF is appropriate for you.

  • Read the Fund Manager’s Product Disclosure Statement
  • Make sure you understand all the fees associated with an ETF
  • Review the investment criteria, thesis and strategy of each ETF to ensure it fits your goals
  • Look at the underlying holdings and rules governing the ETF, including the weight of holdings
  • Pay attention to the target and structure of the ETF – this might include what index the fund seeks to track or outperform, the use of leverage, futures, and the like
  • Remember, a commodity or resources-oriented ETF may actually concentrate your investment exposure, and a downturn in that sector could have a magnified effect on your portfolio

 

And lastly, there are also natural resources ETFs like the SPDR S&P Global Natural Resources ETF (NYSE: GNR) and FlexShares Morningstar Global Upstream Natural Resources Index Fund (NYSE: GUNR) that offer broad-based exposure to a basket of commodities, including not only energy and precious metals, but also battery metals, base metals and agriculture

 

SelfWealth Ltd ACN 52 154 324 428 (“SelfWealth”) (Australian Financial Services Licence Number 421789). The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Taxation, legal and other matters referred to on this website are of a general nature only and should not be relied upon in place of appropriate professional advice.