Buy Commodities Using Exchange-Traded Funds

Oil, gasoline, natural gas, gold, silver, copper, nickel, lead, zinc and many other commodities are trading to the upside on the strength of global demand. It seems that every day commodities are making new all-time highs.

In Hot Commodities, published in 2004, professional investor Jim Rogers foretold the rise of commodities prices and he advised his readers to do what he was doing - buy commodities in anticipation of a 15-year cyclical upside in commodity prices. The price charts of many commodities and commodity-based stocks affirm his predictions.

So is too late to join the party? The very rapid ascent of prices in 2005 and 2006 suggests that current prices are due for a correction. But if you believe that commodities have many more years on the upside, today's prices may be a bargain. Probably the best advice is from Rogers when he advised investors not to chase prices but to buy commodities on price weakness.

You can play commodities with shares of commodity-related companies, managed mutual funds (most natural resource funds charge very high fees and are heavily weighted with oil company stocks), futures contracts (leave them to the professionals) and commodity oriented exchange-traded funds. The following table lists 18 ETFs that include oil, gold, silver, base metals and a smattering of other commodities. Be sure you understand what commodities the ETF owns or tracks before you buy it.

Commodity Exchange-Traded Funds
ETF	Symbol	Major Holdings
DB Commodity Index Tracking Fund	DBC	Futures contracts to track the Deutsche Bank Liquid Commodity index. Weightings are: crude oil (35%), heating oil (20%), gold (10%), aluminum (12.5%), corn (11.25%) and wheat (11.25%).
Energy Select Sector SPDR	XLE	Oil company stocks.
iShares Dow Jones US Basic Materials	IYM	Chemicals, base metals, mining forestry company stocks. (Not all commodities).
iShares Goldman Sachs Natural Resources	IGE	Oil, oil services, base metals and mining company stocks.
iShares COMEX Gold Trust	IAU	Owns gold.
iShares Dow Jones US Energy	IYE	Oil company stocks.
iShares Dow Jones U.S. Oil & Gas Exploration & Production	IEO	Oil exploration and oil company stocks.
iShares Dow Jones U.S. Oil Equipment & Services	IEZ	Oil service company stocks.
Shares S&P Global Energy Sector	IXC	U.S. and foreign oil company stocks.
iShares MSCI Australia Index	EWA	Includes mining and natural resources company stocks.
iShares MSCI Canada Index	EWC	Includes mining and natural resources company stocks.
ishares Silver Trust	SLV	Owns silver.
Materials Select Sector SPDR	XLB	Chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products. (Not all commodities).
PowerShares Dynamic Energy Exploration	PXE	Oil exploration and oil company stocks.
PowerShares Dynamic Oil & Gas Services	PXJ	Oil and gas service company stocks.
streetTRACKS Gold Shares	GLD	Owns gold.
U.S. Oil Fund	USO	Owns futures for spot price of West Texas Intermediate light, sweet crude.
Vanguard Energy VIPERs	VDE	Oil and oil service company stocks.

Posted May 16, 2006.