ETF, ETC or mining share: what are you actually holding?
Most people who want commodity exposure never open a futures account. They buy something on an exchange with a commodity's name in its title. Those products are not variations on one thing — they hold completely different assets. What follows is mechanics, not recommendation.
1. Physically backed products
Practical only where value density is high and storage is cheap and safe — in practice, precious metals. The issuer buys the metal, stores it in an allocated vault, and issues securities against it.
The one mechanical drift: the management fee is normally paid in metal, so the ounces behind each security decline slowly and predictably. At a 0.40% annual fee, a security representing 0.1000 oz of gold represents:
- after 1 year: 0.1000 × 0.996 = 0.0996 oz
- after 5 years: 0.1000 × 0.996⁵ = 0.0980 oz
- after 20 years: 0.1000 × 0.996²⁰ = 0.0923 oz
That is not a tracking failure — it is the arrangement working as designed, and it is why the fee matters more the longer the product is held. There is no roll here, because there are no futures. Bars in a vault do not expire.
2. Futures-based products
Nobody will vault a cargo of crude or a month of natural gas on your behalf. So for energy, grains and most industrial commodities, an exchange-traded product holds futures and rolls them forward. It therefore tracks a rolling futures position, which is a different thing from the spot price.
Work through one roll. A fund holds $7,500,000 and 100 front-month crude contracts at $75. Before expiry it must sell those and buy the next month, which trades at $77:
$7,500,000 ÷ (77 × 1,000) = 97.4 contracts.
The position shrank by 2.6% — fewer barrels of exposure for the same cash, with the loss arriving as the new contract converges toward spot — and the price of oil did nothing at all. Repeat that twelve times a year and the compounded gap against spot becomes very large. When the curve slopes the other way — the next month cheaper than the expiring one — the same mechanism runs in reverse and adds to the position.
This is why a five-year chart of a futures-based energy product and one of spot energy can differ enormously with no mistake anywhere. Some products mitigate it by spreading across contract months; none eliminate it, because the curve is a fact about storage. The Derivatives domain builds this arithmetic properly.
3. The legal wrapper: fund or note?
In Europe, UCITS rules require a fund to be diversified — so a product tracking a single commodity generally cannot be a fund at all. It is issued instead as an exchange-traded commodity (ETC): a debt security, typically issued by a special-purpose vehicle and collateralised with either the physical metal or cash and securities.
It lists like an ETF and is often called one. Legally you hold a note against an issuer, which introduces counterparty and issuer risk a fund structure does not carry. Some products go further and take their exposure through a swap with a bank rather than holding anything. The practical check: fund or note; physical, futures or swap; and who the counterparty is. Those three answers describe what you own better than the product's name does.
4. Producer equities
A share in a miner or an oil producer is a claim on a business, not on the commodity — and that business has operating leverage.
A gold producer with an all-in cost of $1,600/oz when gold is $2,000/oz earns a margin of $400/oz. Move gold 10%:
- Gold to $2,200, costs unchanged: margin $600/oz — a 50% increase.
- Gold to $1,800, costs unchanged: margin $200/oz — a 50% decrease.
Roughly five-fold amplification, both ways. But "costs unchanged" is doing heavy lifting, and the rest of the share is not a commodity at all: ore grade and mine life (a falling grade raises cost per ounce whatever the price does), jurisdiction, permitting and taxation, cost inflation eroding the very margin the leverage acts on, the company's own hedging programme (a producer that sold forward has already given away the upside), debt and dilution, and plain equity-market beta — a mining share can fall on a day the metal rises.
So a producer equity is a leveraged and contaminated version of the commodity: never a clean substitute.
The one sentence
Each wrapper answers "how do I get exposure?" by holding something different — a bar in a vault, a rolling contract, or a company — and each diverges from spot for its own mechanical reason: a fee paid in metal, a roll, or a business. Which suits whom is not a question this course answers. Knowing what each holds is the part you can verify.
In the data
Each wrapper leaves a different trace in the data, and the difference is itself the decomposition. The metal has a price and nothing else. A listed product has a price, a traded volume and a fund page. A producer has a company record, with staff, a sector and financial statements, because it is a business rather than a metal:
Open the gold fund's page in the Terminal and change the symbol to the miner to see the two records side by side:
Open GLD.US in the EODHD Terminal
What no data record states is what the product actually holds: fund or note, physical, futures or swap. That answer exists only in the prospectus.
Try it now
- The metal and a physically backed wrapper on it are below, five years of each. Measure both, first bar to last, and subtract one percentage from the other. The gap should be small and one-directional — that is the fee, compounding.
- Now predict the other case. A wrapper holding futures must replace them as they expire; the curve course shows what five years of that does. Small and smooth like this one, or large and structural? Name the mechanism.
- A mining share owns metal in the ground, a cost base, debt and a management team. Name one thing that could move a large miner 20% in a week while the metal did not move at all.