What are commodity ETFs and do they belong in my ISA?
Commodity ETFs let UK investors access energy, metals, agriculture, and diversified commodity baskets without holding physical assets or individual company stocks. They can be held inside a Stocks and Shares ISA, sheltering any gains from CGT and income from tax. Whether they belong in your portfolio depends on your time horizon, existing exposure, and view on the commodity cycle.
What a commodity ETF actually is
A commodity ETF tracks the price of a commodity or basket of commodities. There are two main types:
Physical ETCs — backed by actual physical assets held in a vault. iShares Physical Gold ETC and similar products hold real gold. When you buy a share, you own a fraction of a physical gold bar. These are straightforward and widely available on UK platforms.
Futures-based ETFs — track commodity prices by holding futures contracts rather than physical assets. These are more complex: they can suffer from "roll costs" when near-term contracts expire and must be replaced with more expensive future-dated contracts. Over long periods, this drag can be significant in certain markets.
For most UK retail investors, physical ETCs for gold and silver, and equity-based ETFs for energy and miners, are simpler and more cost-effective than futures-based products.
The commodity cycle argument for owning them now
Commodity super cycles are long. The last one ran from roughly 2002 to 2014 — twelve years during which commodities significantly outperformed global equities. The cycle before that ran from 1968 to 1980. Between cycles, commodities can underperform for a decade or more.
The argument for owning commodity ETFs today rests on three structural drivers:
Capex starvation. Upstream oil and gas investment is down 35% from its 2015 peak. The top 20 miners are spending 40% less than at the 2012 cycle high. Supply cannot respond quickly to demand.
Electrification. Copper, lithium, cobalt, silver, and aluminium are all required in vast quantities for electric vehicles, grid upgrades, and renewable energy. Demand is rising structurally at the same time supply is constrained.
Deglobalisation. The post-Cold War era of frictionless global trade is ending. Countries are reshoring critical supply chains and building strategic reserves of energy and key minerals. This requires more physical infrastructure investment, not less.
Since October 2020 — before these trends accelerated significantly — the Quantix Commodity Index is up 217%. The NASDAQ is up 130%. The S&P 500 is up 85%.
Which commodity ETFs are available on UK platforms
| Asset class | Example product | Type |
|---|---|---|
| Gold | iShares Physical Gold ETC (SGLN) | Physical |
| Silver | iShares Physical Silver ETC (SSLN) | Physical |
| Energy / oil majors | iShares Oil & Gas Exploration ETF | Equity |
| Miners | BlackRock World Mining Trust (BRWM) | Equity (Investment Trust) |
| Diversified commodities | iShares Diversified Commodity Swap ETF (SCOM) | Futures-based |
| Copper | Global X Copper Miners ETF (COPX) | Equity |
All of the above can be held inside a Stocks and Shares ISA on most major UK platforms (Hargreaves Lansdown, AJ Bell, Freetrade, Trading 212, Interactive Investor).
The tax case for holding them inside an ISA
Commodity ETFs — especially equity-based ones — can generate significant capital gains in a rising cycle. Holding them outside an ISA means those gains are subject to CGT at 18% or 24% above the £3,000 annual allowance.
Holding inside an ISA eliminates this entirely. If a mining ETF triples over a commodity super cycle, the entire gain is tax-free inside an ISA. Outside it, a higher-rate taxpayer would pay 24% on the gain above £3,000.
The annual ISA allowance is £20,000. Using it for assets with the highest expected capital growth — rather than cash or low-yield bonds — is one of the most straightforward ways to reduce your long-term tax bill.
The honest caveats
Commodity prices are cyclical and volatile. A diversified commodity ETF can fall 40–50% in a bear market and take years to recover. Futures-based products carry additional costs that erode returns over time if held passively. And timing the commodity cycle — even if the structural thesis is correct — is genuinely difficult.
The argument is not that everyone should overweight commodities. It is that most UK investors have zero commodity exposure, that zero is a deliberate choice rather than a default, and that understanding the options is the first step to making that choice consciously.
Key takeaway: Commodity ETFs are accessible, ISA-eligible, and offer genuine diversification from equities and bonds — but they carry real volatility and require a long time horizon to smooth out the cycle.
Arken checks whether your portfolio has any commodity, energy, or real asset exposure. If you have none and your portfolio is above £10,000, it will flag this as a potential gap and explain why it matters.
