Lesson 3 of 6 · All lessons in this module
Lesson 3 of 6 · 13 min
Commodities: features and ways to invest
Commodities pay no cash flows and cost money to hold, so investors seek price gains, usually through futures and other derivatives rather than physical holdings, or through ETPs, CTAs and specialised funds.
In short
- Commodities generate no cash flows and incur carrying costs (storage, transport, insurance, financing); the return is price appreciation in excess of carry.
- Governments subsidise food prices, support farmers and often own subsurface rights or state energy and mining firms; climate policy shifts demand from fossil fuels toward metals such as lithium, cobalt and nickel.
- Sectors: energy, base metals, precious metals, agriculture and others (carbon credits, freight). Contracts specify quantity, quality, maturity and delivery location.
- Most exposure is via derivatives (futures, forwards, options on futures): liquid, transparent and free of storage hassle, but physically settled futures carry delivery risk in a glut.
- Alternatives: ETPs (ETFs/ETNs) for simple brokerage access; CTAs for active directional futures strategies; specialised funds (e.g. private energy partnerships) for sector expertise.
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