What Is a Commodity Index?

Sean Kemery is a financial advisor who worked at several investment companies across New York. Between 2010 and 2016, Sean Kemery worked as a senior commodity portfolio manager at Deutsche Bank.

A commodity index monitors the prices and yields of a wide range of goods like coffee, crude oil, gold and sugar. Investors may access these indices using exchange-traded funds (ETFs) or mutual funds. Commodity index funds are popular among investors who intend to get into the commodities market without the need to enter the futures market.

Market players can diversify their portfolios and hedge against inflation when they invest in commodities. As a result, investors committed to a particular commodity or industry sector may encounter instability. However, because an index is a portfolio, it reduces an investor’s risk.

While trading in a commodity index, investors can trade numerous items through a single contract. Like individual commodities, index transactions are completed with cash but do not require physical delivery.