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3 New Funds Access Agri Commodities

NEW YORK ( TheStreet) -- Investors interested in direct access to individual agricultural commodities were just given several more choices this week with the Teucrium Soybean Fund (SOYB), the Teucrium Wheat Fund (WEAT) and the Teucrium Sugar Fund (CANE). Teucrium Trading first entered the arena a little over a year ago with the Teucrium Corn Fund (CORN) which has attracted over $100 million in assets.

Similar to CORN, the new funds are futures-based which makes them susceptible to the vagaries of the futures curve, meaning that as futures expire they can sometimes be replaced with futures that cost more than the ones expiring. This is referred to as contango and can be a drag on returns.

In an effort to minimize the effect of contango the Teucrium family of funds staggers the expiration of the futures held. SOYB puts 35% in the second contract to expire, 30% in the third contract to expire and the remainder in the November contract that expires after the middle contract. WEAT has 35% in the second to expire, 30% in the third to expire and the rest in the following December. CANE has 35% in the second to expire, 30% in the third to expire and the rest in the following March contract.

While the above may seem difficult to process the big idea is that the funds avoid the about-to-expire contract and the manner in which they spread the maturities gives a reasonable chance of avoiding contango.

The funds will all charge a 1% expense ratio which may seem expensive on a nominal basis but the contango-busting strategy requires a lot of trading activity by the managers, beyond a typical stock fund that must rebalance quarterly.

That these funds are futures-based might be a source of frustration for some investors, but the only practical ways to access these commodities is a futures-based ETF or an exchange-traded note like the funds from iPath. Physically backed funds, like the SPDR Gold Trust (GLD) would be prohibitively expensive because of how cheap agricultural commodities are in nominal terms. Also, things like wheat cannot be stored indefinitely like bars of gold; eventually the wheat would go bad either from age or possibly mold.
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SOYB $19.54 0.23%
CORN $21.93 0.41%
WEAT $9.12 0.00%
CANE $10.99 1.98%
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