Search
Generic filters
Search in excerpt

An ETF for every investor.

CASH

Horizons High Interest Savings ETF

Price
$50.12
$0.02
0.04%
NAV
$50.1089
$0.0051
0.01%

Benchmark

Fixed Income

Fact Sheet
Learn more about CASH

QQCC

Horizons NASDAQ-100 Covered Call ETF

Price
$4.77
$-0.05
-1.04%
NAV
$4.7844
$-0.0433
-0.90%

Active

Covered Call

Fact Sheet
Learn more about QQCC

HRAA

Horizons ReSolve Adaptive Asset Allocation ETF

Price
$11.25
$-0.07
-0.62%
NAV
$11.1921
$-0.1562
-1.38%

Active

Corporate Class – Alternative

Fact Sheet
Learn more about HRAA
Explore All Products
Search
Generic filters
Search in excerpt
Back to Learning

Investing in Commodities

What is a single commodity ETF?

An exchange-traded fund that invests in a physical commodity like natural gas, oil, silver or gold. A single commodity ETF can hold that particular commodity in physical storage, or may invest in futures contracts.

Why would an investor want to hold a single commodity ETF in their portfolio?

It is considered to be a more efficient way to gain exposure to a specific commodity in an investment portfolio than investing in a commodity-producing company. Investing in a commodity company could prove to be a poor proxy for the commodity and potentially expose you to the particular risks associated with that company.

Moreover, commodities tend to have a low correlation with global stock markets; not necessarily moving in the same direction or by the same magnitude as stocks. Adding commodities to your portfolio can potentially reduce its overall volatility.

Who should buy them?

An investor looking to hedge against inflation, or against certain currencies, as they can be a source of value during times of financial, economic and political uncertainty.

They can also appeal to an investor looking for additional diversification for their portfolio to offset stock market volatility. Commodities generally have low correlation with most global equities, meaning they do not necessarily move in the same direction, or by the same magnitude as stocks.

How do they work?

Horizons single commodity ETFs are based on futures contracts. Futures contracts are rolled from their specified delivery month to a subsequent delivery month before contract maturity (when the holder of the contract would be required to accept or make delivery of a physical commodity)

What are the implications of contango and backwardation?

Contango is a condition in which the price of a futures contract is trading above the expected spot price at contract maturity, and the futures curve is upward sloping. In a contango environment, an investor who is in long futures may experience negative “roll yield” if the contract is rolled after the futures price moves downward to converge with the expected spot price (assuming an unchanged spot price at maturity). Even if the commodity appreciates, as predicted by the futures curve at the time of the investment, the investor holding long futures may experience a loss. Typically, investors would want to be in short futures if the futures curve is in contango, unless they expect the commodity to appreciate by more than what is priced into the futures curve.

Backwardation is the inverse condition of contango, in which the price of a futures contract is trading below the expected spot price at contract maturity, and the futures curve is downward sloping. In a backwardation environment, an investor who is in long futures may experience positive “roll yield” if the contract is rolled after the futures price rises to converge with the expected spot price (assuming an unchanged spot price at maturity). Even if the commodity declines, as predicted by the futures curve at the time of the investment, the investor holding long futures may experience no loss. Typically, investors would therefore want to be in long futures if the futures curve is in backwardation, unless they expect the commodity to decline by more than what is priced into the futures curve.

Futures Curve in Contango

comm1.jpg

Futures Curve in Backwardation

comm2.jpg

Canada’s Largest Family of Single Commodity ETFs

Ticker ETF Name Management Fee* (%)
CARB Horizons Carbon Credits ETF 0.75
HUG Horizons Gold ETF 0.20
HUZ Horizons Silver ETF 0.65
HUC Horizons Crude Oil ETF 0.75
HUN Horizons Natural Gas ETF 0.75

*PLUS APPLICABLE SALES TAX

Horizons Single Commodity ETFs attributes

• Trade on the Toronto Stock Exchange from 9:30 a.m. to 4:00 p.m. EST
• Currency hedged to the Canadian dollar
• Intraday liquidity
• Tax efficient
• Management fee* ranges from 0.20% to 0.75%

Get Horizons insights in your inbox

Please select whether you are an…*
* Indicates required field

Related Posts

At Horizons ETFs, we believe in education as empowerment. We endeavor to equip Canadian investors with the knowledge and tools they need to navigate the investing world. From the ETF basics to more complex topics like how our suite of inverse and leveraged funds work, our comprehensive learning library aims to be accessible for all investors, from beginners to experienced traders!