What is an ETC? Simply explained

An ETC (Exchange Traded Commodity) is a security traded on the stock exchange that gives access to individual commodities such as gold, silver, or oil. Unlike ETFs, which usually track a broad index, ETCs focus on specific commodities. Legally, ETCs are debt instruments, not investment funds. This means they are not considered segregated assets and therefore carry issuer risk.

In the Peaks app, for example, the iShares Physical Gold ETC is available. But what exactly is an ETC, how does it work, and how does it differ from an ETF? This article explains the most important things you need to know about ETCs.

ETC vs ETF – What does ETC mean compared to an ETF?

ETFs (Exchange Traded Funds) are funds that track an index and qualify as segregated assets. This means the invested capital is protected in the event of the issuer’s insolvency. ETCs, on the other hand, are debt instruments and are subject to issuer risk. In addition, ETFs are not allowed—under the UCITS directive—to invest solely in a single commodity. That’s why there are no physical commodity ETFs in the EU.

Gold ETC, commodities & more: What types of ETCs are there?

ETCs offer an easy way to invest in commodities like gold, silver, oil, or agricultural goods — without having to buy or store the physical assets yourself. Depending on the product, some ETCs are backed by physical commodities, while others use financial instruments to track market prices. One bonus of ETCs: you get exposure to gold or cattle prices—without having to stack gold bars in your closet or house a herd of cows in your backyard.

ETCs and their risks – What you should know

ETCs carry certain risks, such as:

Issuer risk: Because ETCs are debt instruments, there is a risk that the issuer could become insolvent.

Price volatility: Commodity prices can fluctuate significantly, which affects the ETC’s value.

Currency risk: Many commodities are priced in U.S. dollars. Exchange rate fluctuations can impact the value of the ETC.

It’s important to be aware of these risks and understand how they affect your investment.

What can an ETC represent in a portfolio?

ETCs make it possible to invest specifically in individual commodities. Whether and how they’re used in a portfolio depends on individual goals and preferences. In the end, ETCs are another type of asset to invest in that could help in building a diversified portfolio. This article is for informational purposes only and does not constitute investment advice.

In the Peaks app, the iShares Physical Gold ETC is available as part of the custom portfolio feature. Users can combine this ETC with other ETFs to build their own personalised portfolio—or, if desired, even create a portfolio made up entirely of gold. The feature is available; how it’s used is up to each individual’s preferences and decisions.

ETCs in a nutshell

In short, ETCs open the door to investing in individual commodities - each with its own structure, risks, and role in the wider investment landscape. Whether an ETC fits into your personal portfolio depends on your personal goals, preferences, and level of knowledge. Whether you're interested in gold, other precious metals, or commodities like energy and agriculture, there's plenty more to explore on this topic!

As ever, please remember that investing always involves risk. You can lose (part of) your invested money.