5 of the best ASX commodity ETFs to consider

ASX commodity Exchange Traded Funds (ETFs) are popular investment vehicles that allow investors to gain exposure to the performance of selected hard and soft commodities with the same ease as purchasing any normal share on the ASX.

ASX commodity ETFs: what you need to know

Hard commodities are defined as natural resources which are usually mined or extracted from the ground, such as oil, gold, or copper. Soft commodities are grown and usually require maintenance during production, such as livestock, wheat, or sugar.

Commodities underpin the economic system in a fundamental way; every share on the ASX ultimately generates profit through the commodity chain.

Commodity ETFs give investors an excellent advantage in that they provide significant diversification in a portfolio. This is because commodities’ performance historically demonstrates a low correlation with other major asset classes, such as cash, fixed income, or international and Australian equities.

For example, gold has long been viewed as a recession-proof 'safe haven’ real asset inflation-hedge. But for practical reasons, it makes far more sense to buy into a gold ETF rather than take delivery of physical bars.

In an era of rising interest rates and rising inflation, investors who have diversified through the best ASX commodity ETFs have enjoyed a reasonable level of portfolio protection through 2022.

For perspective, while almost every major index is in a bear market right now, many commodities have surged to record or near-record highs since the start of the year.

Why invest in ASX commodity ETFs?

Investing directly in commodities futures can be both impractical and expensive. There’s even the occasional report of a trader who has forgotten to close a futures position who is forced to take physical delivery of a commodity.

Further, futures themselves are relatively complex, typically have large contract sizes, come with margin demands, and include a component of open-ended risk that needs to be covered by the trader. This can make them unattractive to some retail investors, especially those without starting their investing journey.

By contrast, an ASX commodity ETF allows investors to gain exposure to this useful asset class without the drawbacks.

Most commonly, they track a benchmark index which either measures the price of a single commodity or a basket of multiples commodities. Most are synthetic ETFs which track commodity futures, and therefore may perform better or worse than the spot price of the commodity itself.

Of course, some ASX commodity ETFs will directly invest. A common example of this is the currency hedged BetaShares Gold Bullion ETF (ASX: QAU), which is backed by physical gold held within a JP Morgan Chase vault in London. However, this is the exception, rather than the rule.

Of course, this is just a very brief overview of ASX ETFs.

Here is a list of five of the best commodity ETFs on the ASX right now, for investors to consider if they are seeking exposure to the asset class.

1. Perth Mint Gold

2. Global X Battery Tech & Lithium ETF

3. BetaShare Global Energy Companies ETF

4. Global X Physical Precious Metals Basket

5. BetaShares Global Agriculture Companies ETF

1. Perth Mint Gold

Perth Mint Gold gives stock investors exposure to the precious metal, without the tremendous cost and inconvenience of needing to transport and secure it directly in its physical form.

As a product that is fully underpinned by the government-backed gold of the Perth Mint, this ETF provides one of the most secure forms of exposure to bullion on the ASX.

With a management fee of just 0.15%, Perth Mint Gold also claims to be most cost-effective gold ETF on the ASX.

As of 30 September 2022, the product had a return of 6.45% for a one-year period and 9.4% for a five-year period.

2. Global X Battery Tech & Lithium ETF

Lithium stocks have been some of the strongest performers in 2022, amidst a stressful period for equity markets due to the hawkish monetary policy adopted by central banks around the globe.

The alkali metal is a key ingredient in modern batteries, putting it on track for surging demand in future as low-carbon policies drive the popularity of electric vehicles.

The Global X Battery Tech & Lithium ETF enables investors to gain exposure to a range of companies involved in lithium extraction as well as the related sectors of electric vehicles and battery technology. These companies include BYD, Nissan, Pilbara Minerals Ltd and Mineral Resources Ltd.

Over the past six months, this diverse assortment of lithium-related stocks has helped to boost the price of Global X shares by more than 7%.

3. BetaShare Global Energy Companies ETF

With the war in Ukraine still raging and global supply chains disrupted by the lingering impacts of Covid, energy is one of few market sectors where stocks have posted a strong performance in 2022.

The BetaShares Global Energy Companies ETF gives investors the opportunity to gain exposure to a diverse range of the world's largest energy stocks, including Chevron, ExxonMobil and Royal Dutch Shell.

Because it employs a passive, index-tracking approach, this ETF can save costs for investors by dispensing with active management fees.

4. Global X Physical Precious Metals Basket

This ETF provides ASX investors the opportunity to gain exposure to four different precious metals with just a single trade. These precious metals include gold, silver, platinum and palladium, all of which are highly valued for both their scarcity and modern industrial applications.

Unlike other ETFs that provide indirect exposure to precious metals by taking equity stakes in resource companies, the Global X Physical Precious Metals Basket is backed by actual bars of bullion. Each of these physical bars of precious metal is individually identified and allocated.

5. BetaShares Global Agriculture Companies ETF

As central banks around the globe continue to grapple with breakneck inflation, agricultural commodities potentially present an effective channel for investors to hedge against untamed price gains. This is particularly the case given the war in Ukraine, which has caused major disruptions to the global supply of fertilizer.

The BetaShares Global Agricultural Companies ETF provides investors with a convenient means of gaining exposure to agricultural commodities using a diversified portfolio of some of the world's biggest farming, fertilizer and food companies.

These include Archer-Daniels-Midland Company, Deere & Co, Corteva Inc and Tyson Foods.

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