What does Commodity ETF mean?
An Exchange Traded Fund (ETF) that invests in physical commodities such as agricultural products, precious metals and natural resources. A Commodity ETF invest in a single commodity. The ETF instrument is listed on exchanges, you can trade. When you are trading in a commodity through an Exchange Traded Fund then you do not buy that commodity in actual, but you track its price / value.
Some Commodity ETFs are basically the Index fund for that particular commodity, the basic use of Commodity ETF is to diversify the investment basket.
Futures Knowledge Explains Commodity ETF
Some popular Commodity ETFs are focused on Oil, Gold, Sugar, Silver, and Natural Gas.
For example, a Gold ETFs pool funds from individuals & other investors and then invests in physical Gold which is stored by a custodian. The Gold ETFs are traded on regular equity exchanges such as the NASDAQ. Each unit of ETF is equivalent to the market price of one unit of Gold. The Exchange Traded Fund allows you to invest and trade in Gold without hassles of taking physical delivery or storage of Gold, or maintaining daily margin requirements in a futures account. Gold ETFs attempt to provide a % return matching with direct investment in gold (or whatever the underlying commodity might be).
For a list of all Commodity ETFs check out: