Commodities are raw physical goods — metals (copper, iron ore, nickel), energy (oil, natural gas, LNG), and agricultural products (wheat, cattle, sugar). For Australian investors, commodities are an important part of the economy and provide genuine portfolio diversification — their prices often move independently of share markets.
Why Consider Commodities?
Inflation hedge: Commodity prices often rise during inflationary periods — energy and food costs drive CPI directly. Holding commodity exposure can protect portfolio purchasing power.
Low correlation with shares: Commodity prices are driven by supply/demand in global physical markets — not corporate earnings or sentiment. In many periods, commodities and shares move independently.
Australian economic relevance: Australia is one of the world’s largest commodity exporters (iron ore, coal, LNG, gold, copper). Our economy’s performance is closely tied to global commodity demand — an Australian investor already has indirect commodity exposure through ASX mining and energy companies.
Portfolio diversification: A 5–10% commodity allocation can reduce overall portfolio volatility in a well-diversified portfolio.
Key Commodity Categories
| Category | Key commodities | Australian relevance |
|---|---|---|
| Base metals | Copper, aluminium, nickel, zinc | ASX mining companies; QCB ETF |
| Bulks | Iron ore, coal, manganese | BHP, Rio Tinto, Fortescue |
| Energy | Oil, natural gas, LNG | Woodside, Santos, Beach Energy |
| Precious metals | Gold, silver | See Gold Investing Australia |
| Agricultural | Wheat, cattle, wool, sugar | ASX agribusiness companies |
How to Access Commodities in Australia
1. Commodity ETFs on the ASX
| ETF | Description | MER |
|---|---|---|
| QCB | Betashares Commodities Basket ETF (ex-agriculture, AUD-hedged) — oil, metals, gold | 0.69% |
| CMOD | Global X Commodities ETF — broad commodity basket | 0.65% |
| OOO | Betashares Crude Oil Index ETF — oil exposure, AUD-hedged | 0.69% |
QCB provides broad commodity exposure (excluding agriculture) via a diversified basket of commodity futures — the most accessible way for retail investors to hold diversified commodity exposure without owning physical goods or futures directly.
Note on commodity futures: Most commodity ETFs hold futures contracts (not physical commodities). Futures contracts roll from one month to the next — this roll cost (or sometimes roll yield) can meaningfully affect returns versus spot commodity prices. Check each fund’s documentation.
2. ASX-listed mining and energy companies
Australia’s largest listed companies are predominantly commodity producers:
- BHP: Diversified — iron ore, copper, nickel, coal
- Rio Tinto: Iron ore, aluminium, copper
- Fortescue: Iron ore
- Woodside Energy: LNG, oil
- Santos: Natural gas, LNG
- South32: Aluminium, manganese, coal
- OZ Minerals (acquired by BHP 2023): Copper
Holding these shares provides indirect commodity exposure plus company-specific business risk, management quality, and dividends (franked in many cases).
3. Resources ETFs
| ETF | Description | MER |
|---|---|---|
| MVR | VanEck Australian Resources ETF — top ASX resources companies | 0.35% |
| QRE | Betashares Australian Resources Sector ETF | 0.34% |
These ETFs hold ASX-listed mining and energy companies — providing commodity exposure through Australian equities with dividends, franking credits, and company-level risk.
Key Risks in Commodity Investing
Volatility: Commodity prices are highly volatile — oil fell 60%+ in 2020; iron ore has experienced falls of 40%+ in single years.
Futures roll costs: ETFs holding commodity futures may underperform spot prices due to the cost of rolling contracts forward each month.
No income: Commodities themselves pay no dividends — all return is capital gain or loss. (Commodity company shares do pay dividends.)
Complexity: Commodity markets are influenced by geopolitics, weather events, currency moves, and global industrial demand — significantly more complex than share markets.
Currency effects: Many commodities are priced in USD. A strengthening AUD can reduce returns for unhedged Australian investors.
Commodities vs Commodity Companies
| Feature | Physical commodity / futures ETF | ASX commodity company shares |
|---|---|---|
| Commodity price sensitivity | Direct | Leveraged (higher ups, higher downs) |
| Dividends/income | No | Yes (often franked) |
| Company-specific risk | No | Yes |
| Currency exposure | USD (hedged or not) | AUD (mostly) |
| Diversification | Broad (basket) or single | Company-specific |
Most Australian investors already hold commodity company exposure via VAS (which includes BHP, Rio Tinto, Woodside). Adding a commodity ETF (QCB) adds direct commodity price exposure beyond equity risk.
Related Articles
- Gold Investing Australia
- How to Access Alternatives via ETFs Australia
- ASX Shares Australia
- Alternative Investments hub
Frequently Asked Questions
How do I invest in commodities in Australia? The most practical approach for retail investors is ASX-listed ETFs (QCB for broad commodity exposure, OOO for oil, MVR for ASX resources companies). Alternatively, buying shares in major ASX mining and energy companies (BHP, Woodside, Rio Tinto) provides indirect commodity exposure with added dividends.
Are commodities a good investment in Australia? Commodities are typically considered a portfolio diversifier and inflation hedge rather than a primary return driver. Their high volatility and lack of income make them unsuitable as a large portfolio allocation for most investors. A 5–10% allocation is a common range when commodities are included at all. Past performance is not a reliable indicator of future performance. General information only.
Is oil a good investment in Australia? Oil exposure via OOO (Betashares Crude Oil ETF) provides direct price exposure to crude oil futures. Oil is highly volatile — driven by OPEC decisions, geopolitics, demand cycles, and energy transition factors. It provides genuine diversification from shares but is high-risk as a standalone investment. Consider within a broader alternative allocation if at all.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.