Commodities rallied strongly so far in 2022, as stocks and bonds fell in tandem amid rising interest rates and higher-than-expected inflation. In particular, precious metals like gold, silver, and (sort of) copper outperformed thanks to geopolitical instability and supply chain constraints.
While investors can go out and buy physical gold, silver, or copper bullion, an easier (and potentially tax-free/deferred using a TFSA/RRSP) method is through using exchange-traded funds (ETFs) that track the price of gold, silver, or copper.
Horizons ETFs offer a set of low-cost, high-liquidity ETFs that provide exposure to these metals, either through futures contracts or via miner stocks. Let’s take a look at three potential options for gold, silver, and copper, respectively.
The gold option
Horizons Gold ETF (TSX: HUG) offers investors targeted exposure to gold prices via the use of futures contracts. These are derivatives that allow investors to speculate on the future price of a commodity. The index tracked here is the Solactive Gold Front Month MD Rolling Futures Index ER.
HUG is also currency hedged. The fund uses futures derivatives to minimize the impacts of fluctuations between the CAD and USD, as the price of gold in USD is different than in CAD. This means reduced volatility but also some tracking error due to the cost of hedging.
In terms of fees, buying HUG will cost a management expense ratio of 0.30%. For a $10,000 portfolio, this means around $30 worth of fees annually. This is lower than the average for Canadian commodities funds.
The silver option
Horizons Silver ETF (TSX: HUZ) is constructed the same way that HUG is. The ETF also uses futures contracts to track the price of gold via the Solactive Silver Front Month MD Rolling Futures Index ER and is also currency hedged to reduce volatility.
Silver tends to be more volatile than gold, making HUZ a slightly riskier holding. Compared to HUG, HUZ is also significantly more expensive, with an MER of 0.78%. For a $10,000 portfolio, this means around $78 worth of fees annually.
The copper option
Unlike the previous examples on this list, Horizons Copper Producers Index ETF (TSX: COPP) does not use futures. Rather, the ETF tracks the Solactive North American Listed Copper Producers Index, which holds stocks involved in copper ore mining or copper production.
Because COPP holds mining stocks, it correlated with the broader stock market and to the spot price of copper. This makes it a good middle ground for investors still seeking some equity exposure. Compared to pure commodities, COPP is also more likely to have positive expected returns, as its underlying companies grow and pay dividends.
COPP is the most expensive ETF on this list, costing a MER of 0.65%. For a $10,000 portfolio, this means around $65 worth of fees annually. Still, not many Canadian ETFs offer copper exposure, so this is the best bet for now outside of using U.S. ETFs.
