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Exchange Trader Funds (ETF) Analysis
Commodity ETF Print E-mail
Exchange Traded Funds | Introductions | Written by Oil N' Gold | Sat Mar 13 10 02:55 ET

Commodity ETFs (ETCs) provide investors exposure to commodities and commodity indices, including energy, precious metals, base metals, softs and agriculture. While commodity ETFs offer the same simple ways in trading as other ETFS, investors should beware some of the unique risks in commodity ETFs. While most commodity ETFs invest in futures, some hold physical assets. In fact, the earliest commodity ETFs, SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) hold physical bullion as their assets. In this case, these ETFs are treated by the IRS as collectibles and the gains from the ETFs are taxed at a rate of 28%, regardless of how long investors hold the fund.

ETFs that hold commodity futures are taxed according to Section 1256 of the IRS code. Investors enjoy no tax benefits as the underlying future are 'marked-to-market' at the end of the year. When investors do want to realize gains, they are taxed 60% as long-term gains and 40% as short-term gains, no matter how long an investor has owned the fund.

That said, the market for commodity ETFs remains robust with assets under management growing +131.7% in 2009.