Exchange Traded Funds (ETFs) vs Exchange Traded Commodities (ETCs)

Understanding the differences

Over recent years there has been significant growth in the number of Exchange Traded Products (ETPs) available to retail investors.  As the name suggests, the attraction of such products is that they can be traded on an exchange.  This means that in most cases they are likely to have strong liquidity, and hence availability to investors.  It also means they are likely to have regular and transparent pricing.

Two of the main types of ETPs available to retail clients through Barclays Stockbrokers are Exchange Traded Funds (ETFs) and Exchange Traded Commodities (ETCs).  Here we explain the basic differences between them.

ETFs are, as the name suggests, funds that are listed and traded on a stock exchange.  In general, their purpose is to track the performance of an underlying benchmark, which is usually an equity or fixed income index of some sort, such as the FTSE 100, the S&P 500 or the FTSE UK Gilts All Stocks index.  They are not restricted to tracking indices, for example some may track pre-selected basket of equities, but in general you will find that most ETFs have equity or fixed income indices as their underlying.

ETCs are also products that are listed and traded on a stock exchange, however unlike ETFs, which will generally track equity or fixed income indices, ETCs track commodities, such as metals, natural energy resources, agricultural produce or livestock.  In some cases an ETC will try to directly track the performance of a given commodity, in other cases ETCs will track an index that is designed to measure the value of that commodity.  The second index tracking type of ETC tends to occur in cases where there may be complications in tracking the value of the actual physical commodity itself.

There is further information available about the nature and technical structure of both ETFs and ETCs.  In some cases the products will share certain features and in other cases they will be different.

As a potential investor in either ETFs or ETCs we would recommend that you read the prospectus for each product to ensure that you fully understand the product, its structure and the associated risks.