NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsMedium
A client is interested in an investment that tracks the performance of a specific commodity, such as gold, without directly owning the physical asset. They want the flexibility to trade this investment throughout the trading day on an exchange, similar to stocks. Which of the following investment vehicles would be most suitable for this client?
- AA mutual fund specializing in commodity-producing companies.
- BAn Exchange-Traded Commodity (ETC).
- CA physically-backed precious metals certificate.
- DA commodity futures contract.
Show answer & explanationAnswer & explanation
Correct answer: B. An Exchange-Traded Commodity (ETC).
An Exchange-Traded Commodity (ETC) allows investors to track commodity prices, trade on an exchange like stocks, and avoid direct ownership of the physical asset.
Why the other options are wrong
- A. A mutual fund invests in companies, not the commodity itself, and trades only once a day.
- C. A precious metals certificate represents ownership of physical metal, not a vehicle for tracking and exchange trading without direct ownership.
- D. Futures contracts are derivatives with specific expiration dates and leverage, not simply tracking and trading like stocks.
Exchange-Traded Commodity (ETC)
An investment product that tracks the performance of a single commodity or a basket of commodities, traded on stock exchanges like shares, without requiring direct ownership of the physical commodity.
- Tracks commodity prices.
- Trades on an exchange throughout the day.
- Does not require physical ownership.
Memory trick: ETCs let you 'E-Track Commodities' like stocks.