Best Commodities ETFs on the ASX

A Commodities ETF provides broad exposure to a basket of physical commodities including oil, natural gas, industrial metals, precious metals, and agriculture. On the ASX, key options include QCB (BetaShares Commodities, AUD-hedged) and COMB, which track diversified commodity indices. These ETFs typically use futures contracts rather than holding physical commodities, meaning returns reflect the futures curve dynamics - not just spot price changes - and they tend to be energy-weighted toward oil and gas.

Scrutinise the index methodology and commodity weightings - energy-heavy baskets behave very differently from equally weighted ones. Understand whether the ETF is AUD-hedged (QCB is hedged) as commodity prices move inversely to the USD. Critically, check the fund's approach to futures rolling: contango (where future prices exceed spot) creates a persistent drag on returns, while backwardation benefits holders. Compare management fees, and note that futures-based commodity ETFs may generate foreign income requiring specific ATO reporting.

Contango occurs when futures contracts for later delivery are priced higher than near-term contracts, meaning each time the ETF rolls expiring futures into new ones, it effectively buys high - creating a negative roll yield that erodes returns even if the spot commodity price is flat. This has historically cost commodity ETF investors 3–8% annually in certain markets like oil. Backwardation is the opposite and benefits holders. Australian investors in QCB should compare total returns against spot commodity indices to quantify this hidden cost.

Risks include contango drag, significant volatility in energy prices, geopolitical supply disruptions, and complex tax treatment - futures-based ETFs may distribute foreign income without franking credits, impacting SMSF and retiree tax planning. Commodities ETFs offer low correlation to equities and bonds, making them useful as inflation hedges and portfolio diversifiers. They suit investors with a tactical view on inflation or supply constraints, but are generally a satellite allocation (5–15%) rather than a core holding for Australian portfolios.