You can buy a gold bar and store it yourself. With crude oil, natural gas or wheat, physical ownership is a different matter altogether: storage, transport and trading make it difficult in practice for a private investor.
Even so, you can gain investment exposure to these commodities through the stock exchange. This is done with commodity ETFs and ETCs: exchange-traded products that are bought and sold like shares. They are linked to precious metals, energy, industrial metals and agricultural commodities, as well as to baskets that hold several commodities at once. The umbrella term for all of them is commodity ETP.
The oil price can rise markedly over a year, yet an exchange-traded product linked to oil can still return considerably less. Two gold products, for their part, can end up with different returns even though both are backed by the same gold. The difference usually comes from the products' different structures, not from an error.
This article answers one central question: why can two commodity products that look the same behave differently?
Six questions for breaking down a commodity ETP
Most commodity ETPs can be broken down using the same six questions. Not every point applies to every product: a physically backed gold ETC, for example, involves no futures rolling.
- What does the product track? Physical gold, an index based on oil futures or a broad commodity index?
- How is the exposure achieved? Through physical backing, directly with futures, with a swap or with a combination of these?
- Which index does the product track? If the product is based on an index, what is the index's exact name and version: spot, excess return or total return?
- How are the futures rolled? If the product uses futures, to which expiry are the positions moved, and under what rule?
- What role does currency play? Where does the currency risk come from, and is it hedged?
- What are the product's costs and trading characteristics?
What are you actually buying in a commodity ETP?
Commodities are raw materials. Oil, copper, wheat and gold are commodities, and they become the petrol in your tank, the electrical wiring in your walls, the bread on the shop shelf and the ring on your finger. Everyone sees the finished product; few see the raw material.
Central to how commodity markets work is standardisation: quality, quantity and delivery terms are defined in advance, so lots that meet the same standard are comparable and a market price can be formed for them. Copper, for example, has internationally followed reference prices, even though the price actually paid for a physical lot can vary with quality, location and delivery terms.
The spot price is a commodity's current cash market price for immediate or near-term delivery. It is worth keeping in mind, because many commodity ETPs do not invest in the physical commodity at this price.
ETP (Exchange Traded Product) is an umbrella term used for exchange-traded investment products of the ETF, ETC and ETN type. An ETF is an exchange-traded fund, in Europe usually a UCITS fund. Products linked to a single commodity, by contrast, are often debt securities in ETC form: an ETC is not a fund, even though it trades on an exchange like an ETF.
The differences between ETFs, ETCs and ETNs are covered in more detail in the article . In this article, we focus on how commodity exposure is built and where the product's return comes from.
What does the product track, and how is the exposure achieved?
When assessing a commodity ETP, two questions need to be kept apart. What does the product track? The underlying can be, for example, a physical metal, a single-commodity futures index or a broad commodity index. How is the exposure achieved? The product may use physical backing, futures, swaps or a combination of these.
Three common underlying assets and how exposure to them is achieved, side by side. The table is illustrative and does not contain investment recommendations.
These two levels should not be confused. A product based on a futures index can, for example, be implemented with a swap: the product then does not itself own the index's futures contracts but receives the index return from a counterparty under the agreement.
In a physically backed precious metal ETC, the security is backed by an amount of physical metal set out in the product's terms, held in a custodian's vault. The product's value aims to track the metal price, net of costs.
Legally, the structure is different from an ETF. UCITS regulation limits what a UCITS fund can invest in: physical commodities are not part of its ordinary permitted investment universe, and the directive expressly prohibits acquiring precious metals or certificates representing them. In addition, under ESMA's guidelines a UCITS cannot gain exposure to a commodity index made up of only one commodity. That is why exchange-traded products linked to a single precious metal are typically ETCs in Europe, not UCITS ETFs.
An ETC is a debt security, but its exact legal structure varies, and it is not an ordinary interest-paying bond. In the iShares Physical Metals programme, for example, the ETC securities are secured limited recourse obligations, where the investor's claim is limited to the collateral of the series in question. In , that collateral is specifically identified physical gold held by the custodian. So besides the underlying asset, it is worth checking the issuer, the collateral arrangement and the custodian.
Buying an ETC does not usually mean that you own a specific gold bar in your own name. Whether the investment can be redeemed in physical metal also varies from product to product, so the redemption terms need to be checked in the product documents.
Currency means four different things in a commodity product
Besides the metal price, the euro return on a physically backed product is affected by the product's costs and the exchange rate. Of these, currency often gets the least attention.
The fact that an ETC trades on an exchange in euros does not mean that the currency risk is hedged. The main international reference prices for gold are quoted in US dollars, so the euro return can also be affected by the EUR/USD exchange rate.
The trading currency, the product's base currency, the index calculation currency and currency hedging are different things.
The difference is easy to see when you compare two products: and . The latter aims to hedge the currency effect on the gold price back to euros.
An unhedged and a euro-hedged gold ETC side by side. Products A and B are illustrative examples of a structural difference, not recommendations.
Example. Suppose the dollar price of gold rises by 5% over a year. If the dollar weakens by 3% against the euro over the same period, the unhedged product's euro return before costs is about +1.9%. If the dollar instead strengthens by 3%, the same product returns about +8.2% in euros. In both cases, the hedged product aims for a return close to gold's +5% price change, less the cost of hedging and fees. Same gold, three different outcomes, and the difference comes from currency alone. The figures are illustrative.
Currency hedging is not automatically a better or worse choice; it changes the investment's risk profile. The cost of hedging depends on factors such as the interest rate differential between the currencies and how the hedge is implemented. When you compare historical returns, also make sure you know which currency the figures are calculated in.
Physical backing is most practical when a commodity is valuable relative to its volume, keeps well in storage and can be precisely standardised. Gold meets these conditions exceptionally well, and the same logic works for silver, platinum and palladium. Wheat can be standardised too, but its value relative to its volume is low, and storing it takes space as well as control of conditions. The different ways to invest in gold are compared in our guide .
In short: with a physically backed product, the question is not whether it tracks the metal, but in which currency it tracks it and what tracking it costs.
For oil, natural gas and agricultural commodities, by contrast, exposure is usually built through the futures market, which brings us to the next section.
Futures-based products: why the commodity price and the product's return differ
A futures contract is a standardised derivative contract whose value is based on a specific underlying asset and which has a predetermined expiry date. Depending on the product, a futures contract can lead to physical delivery or cash settlement. An oil future, then, is not oil but a contract on the price of oil tied to a future expiry date.
The key point is the expiry. To keep the exposure continuous, the expiring futures position has to be replaced with a new one before it expires. This is called rolling.
For example, provides exposure to the Bloomberg WTI Crude Oil Multi-Tenor 4W Total Return index, which is based on WTI crude oil futures. WTI, or West Texas Intermediate, is a US grade of crude oil; together with North Sea Brent, it is one of the two most widely used oil benchmarks.
The ETC itself, however, does not own WTI futures; tracking is achieved through a collateralised swap structure.
Contango and backwardation: two shapes of the futures curve
The effect of rolling depends on the shape of the commodity's futures curve, that is, the prices at which futures expiring at different dates are trading.
In contango, futures that expire later are more expensive than those closer to expiry; in backwardation, they are cheaper. All else being equal, contango creates a negative roll effect for a long futures position and backwardation a positive one.
Contango and backwardation. The example assumes that the spot price does not change; in a real market, both the spot price and the futures curve change constantly.
Contango and backwardation describe the market's futures curve, not a permanent feature of the product: the same market can move from contango into backwardation and back again.
The usual explanation of rolling can be misleading. If the expiring future costs $80 and the next one $82, the two dollars are not charged as a separate cost at the time of the roll. The effect arises only from later price movements: as expiry approaches, the futures price moves towards the spot price, which is called convergence. If the spot price stayed at $80, a future starting at $82 would fall towards 80. In reality, the spot price changes too, so the outcome is not known in advance.
Four things that affect the outcome
The outcome of a futures-based product can be broken down into its parts: the change in the commodity price, the effect of the futures curve, the interest earned on the collateral, known as the collateral yield, and costs. This is a breakdown of one total return, not four separate sources of return. A change in the commodity's spot price is therefore not the same thing as the product's return.
The change in the commodity price, the futures curve effect, collateral yield and costs, and which document reveals each of them. The breakdown is illustrative and does not contain investment recommendations.
Example. Suppose the spot price of oil rises by 10% over a year. If the market is in contango for the whole year and the roll effect is −1% every month, it compounds to about −11% over the year. The return on the futures exposure before collateral yield and costs is then about −2.5%: oil became more expensive, but the product ended up in negative territory. If the market is instead in backwardation and the roll effect is +1% every month, the same 10% price rise produces about +24%. So the headline “oil rose 10%” does not yet tell you how an oil product performed. The figures are illustrative, and in reality the shape of the curve varies over the year.
The monthly roll effect after 12 months, assuming the rest of the return stays unchanged. The calculation is illustrative and does not reflect the actual performance of any product.
A physically backed product does not have this layer: besides the metal price, its return is affected only by costs and, where relevant, currency.
In short: in a futures-based product, the commodity price is only one of four factors. That is why the commodity can rise in price while the product still lags behind it, or the other way round.
Broad commodity ETFs: the index rules decide
A commodity basket brings several commodities together in one index. The influence of any single commodity is reduced, but diversification does not remove the market risk associated with commodities. The principles of diversification are covered in the article How to diversify your investments.
The four groups in a commodity basket, examples of each and the factors that typically drive their prices. The lists are not exhaustive.
A sufficiently diversified commodity index can meet the diversification requirements of UCITS regulation, in which case a UCITS ETF can gain exposure to it, for example through derivatives. Even then, the fund does not store barrels of oil or wheat; the exposure is achieved through, for example, swaps, commodity ETCs or a combination of these.
is a good example of this. The product's name already tells you three essential things: Diversified Commodity describes the exposure, Swap the implementation method and UCITS ETF the legal fund structure.
The fund receives the return of the Bloomberg Commodity Index Total Return through so-called unfunded total return swap agreements. The fund's own assets, meanwhile, are invested in instruments including US Treasury bills, money market instruments and deposits.
The swap structure introduces counterparty risk, which is managed through collateral arrangements. It is a different type of risk from the collateral and custody structure of a physically backed ETC.
Spot, excess return or total return?
Commodity index families can include spot, excess return and total return versions. The difference lies in whether the index includes the roll effect of the futures and the interest earned on the collateral.
Three index versions of the same commodity basket and what each of them includes. The table is illustrative and does not contain investment recommendations.
Example. Suppose a commodity basket's excess return index rises by 3% over a year and the interest rate on the collateral is 4%. The total return version then ends up at about +7.1%, even though nothing different happened in commodity prices or the futures curve. If two products track different versions of the same index, the difference in their returns can therefore come purely from the level of interest rates. The figures are illustrative.
The interest rate used for the collateral yield depends on the index family and can change: in the Bloomberg Commodity Index total return calculation, the reference rate moved in June 2026 from the three-month US Treasury bill rate to SOFR.
Two products with almost the same name
and look almost identical by name, but they are different funds.
The Irish-domiciled fund has the US dollar as its base currency and an expense ratio of 0.19%. The German EXXY has the euro as its base currency and an expense ratio of 0.46%.
Nor do they track exactly the same index version. The Irish fund tracks the Bloomberg Commodity Index Total Return, whereas EXXY tracks the Bloomberg Commodity Euro Total Return index.
Here is an important detail: an index calculated in euros is not the same as a currency-hedged index. Bloomberg classifies the Euro Total Return version as a currency converted index and publishes currency-hedged (Euro Hedged) indices separately.
In futures-based products, the index rules directly affect rolling, so the difference shows up even more clearly.
Two products that track the same commodity. The expiry, the roll rule and the index version make them different investments. Oil products A and B are illustrative examples, not named products.
That is why comparing products requires the index's full name, the product's base currency and information on any currency hedging, not just the trading currency. The basics of indices are covered in the article What is an index in investing.
In short: with a broad commodity ETF, the index's full name tells you more than the product's name. The same commodity basket can be excess return or total return, in dollars or in euros, hedged or unhedged.
Commodity or commodity company?
Commodity exposure and company exposure are easily confused, because both turn up in the same search results. The difference matters, though, and it is already visible in what you actually own in the product.
A commodity ETP and an ETF investing in commodity companies answer different questions. The examples are illustrative, not recommendations.
If the view concerns the price of the commodity itself, commodity exposure addresses it more directly. If it concerns the profitability of companies in the sector, you are looking at an equity investment.
How to read a product before comparing it
The six questions set out at the start have now been answered. Here is the same list in practical form: which document you can check for each answer.
Six questions and where to find the answer to each. Not every point applies to every product. The model is illustrative; always check the product's current key information document.
Currency is worth checking with particular care. A product's name may indicate hedging with the words EUR Hedged, but the trading currency or the index calculation currency alone does not tell you whether the exposure is hedged: confirm this in the key information document and the prospectus. Looking at costs and trading characteristics is part of comparing any exchange-traded product, and these are covered in the article .
Which risks remain with you?
The risks are not a separate list but a summary of what has been covered above. Product-specific risks are always set out in the product's key information document.
Commodity price risk. Commodity prices can fluctuate sharply, and the volatility of a single commodity can be high. A physical commodity also generates no cash flow: a share can pay a dividend and a bond can pay interest, but a gold bar pays neither.
Risks arising from the structure:
- Currency risk: with an unhedged product, you bear any exchange rate risk, which in the euro area is typically EUR/USD risk.
- Futures curve: contango can weigh on the return of a futures-based product for a long time, but the shape of the curve can also change during the investment period.
- Index risk: the roll method, the choice of futures and the commodity weights are set by the index provider's rules, so two indices linked to the same commodity can deliver different returns.
- Swap counterparty risk: the index return depends on the counterparty meeting its obligations. Collateral arrangements reduce the risk but do not eliminate it.
- ETC issuer and collateral structure: find out who issues the security, which assets secure it and how the collateral is held in custody.
Trading risk. For less heavily traded products, the difference between the buying and selling price, or bid–ask spread, can be wide. You typically buy at the ask price and sell at the bid price, so a wide spread increases the cost of trading. However, a product's small size or low trading volume does not on its own tell you about its liquidity: the liquidity of the underlying asset and market makers also play a part. That is why it makes sense to look at size, trading volume and spread together.
Summary
Gold, oil, copper and wheat can all appear in the same view of exchange-traded products, but exposure to them is built in different ways. For precious metals, physical backing is a common structure, in which case the return is affected by the metal price, costs and, where relevant, currency. In energy, agricultural commodities and many industrial metals, exposure is achieved with futures or with derivatives that track a futures index, so rolling and the index rules can matter as much as the commodity price. Broad baskets also bring in the index weights and the implementation method.
A product's name usually tells you which commodity or index the exposure relates to. The structure tells you how the exposure is achieved, where the return comes from and which risks you bear.
That is why it pays to break a commodity ETP down into its parts before comparing it with another product. The research starts with the key information document and the prospectus, but the exact futures roll rule, for example, is often found only in the index methodology.
Sources and limitations
The information in this article has been checked primarily against regulatory sources, index providers' methodologies and the product issuers' current materials.
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