Commodity ETFs

ETFs that invest in commodities or commodity derivatives are not regulated like mutual funds, but rather operate under one of two alternative regulatory structures.

Physical Commodity ETFs: A number of ETFs hold physical commodities, typically precious metals or currencies. These ETFs register their securities with the SEC and are subject to regulation by the stock exchanges. They are structured as grantor trusts. Investors in these ETFs are taxed as though they own the underlying assets—i.e., are primarily taxed when they sell their investment—although there may also be tax consequences if the ETF sells commodities, such as to pay expenses.

Derivatives-Based Commodity ETFs: Other ETFs invest in commodity derivatives, typically futures and/or options, to obtain exposure to commodities, including precious metals, oil and gas, and currencies, among others. These ETFs are regulated primarily by the Commodity Futures Trading Commission as commodity pools. They also register their securities with the SEC and are subject to regulation by the stock exchanges. They are typically structured as limited partnerships, which also have a number of tax implications, including that investors are taxed annually on gains even if the assets are not sold, as outlined on a K-1 form.

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