Commodities vs Commodity ETFs

Good or bad proxies?

March 2022. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • The average correlation between oil and oil ETFs was only 0.8
  • Gold ETFs provide better exposure to gold than oil ETFs to oil
  • Gold mining stocks are hybrids that feature gold and equity beta


As the war in Russia unfolded, crude oil (WTI) breached $100 per barrel, which was last seen in 2014. Inflation was already at a multi-decade-high level in most developed countries before this geopolitical catastrophe, but is now expected to rise even further.

Although investors have spent more time on how to deal with inflation in the last 12 months than in the previous decade, these new events likely require more work on portfolio construction to avoid negative real returns (read Building an Inflation Portfolio Using Asset Classes).

The traditional inflation hedge is to seek exposure to commodities, which can be achieved via a broad basket or selected assets, where oil and gold are the most-discussed candidates. Oil is typically seen as the beneficiary, sometimes also as the culprit, while gold is the hedge. Both assets are traded via futures as well as ETFs. However, do investors get the same exposure via both instruments?

In this research note, we explore the relationship between oil and gold prices versus ETFs tracking these.


We focus on ETFs trading in the US that provide exposure to oil, which is a universe of six funds that manage a cumulative $3.9 billion of assets. The average management fee is 0.81%, which is expensive compared to equity or fixed income ETFs. The oldest ETF was launched in 2006, so there is a long track record for analysis.

First, we investigate the relationship between the oil ETFs and the underlying commodity. We calculate the correlation to three types of oil futures: WTI, WTC, and Brent, where the average correlation was highest to WTI and lowest to Brent on average.