Best Agriculture ETF? TAGs vs. USAG vs. DBA

April 18, 2012

What's the best broad-based agriculture commodities ETF to meet your needs?

The Teucrium Agricultural Fund (NYSEArca: TAGS) launched on March 28and shortly thereafter, on April 13, the U.S. Agricultural Index Fund (NYSEArca: USAG) joined the fray.

TAGS and USAG compete with the $2 billion powerhouse, the PowerShares DB Agriculture ETF (NYSEArca: DBA), along with six less popular ETNs.

With so many options that claim to do the same thing, how can you choose the right ETF for you?

Here at IndexUniverse, we like to compare ETFs on three dimensions: expenses, liquidity and exposure (check out ETF Analytics for more details on our methodology and what we’ve been working on). How do these funds stack up?

For simplicity’s sake, I’ll exclude the ETNs and only look at TAGS, USAG and DBA.

Expenses

Generally, expenses include explicit costs like expense ratios, along with implicit costs like tracking error. With such new funds, however, tracking analysis is impossible to calculate in a meaningful way, so we’re limited to expense ratios.

DBA is the clear winner here, with an expense ratio of 1.01 percent. In comparison, USAG charges approximately 1.21 percent and TAGS charges approximately 1.6 percent. It should be noted, however, that the latter two cost estimates are derived from prospectus analyses and may overstate the expense ratios if the funds reach higher asset levels.

[Note: I handle the issue of roll yield and related costs in the Exposure section below.]

Liquidity

In a competition between a $2 billion ETF and two very new ETFs, it’s fairly obvious that the large and established ETF will be more liquid. Any investor who is concerned primarily with liquidity should go straight to DBA and wait and see whether USAG and TAGS are able to attract significant volume.

Right now, though, USAG and TAGS are trading at wide bid/ask spreads and don’t trade very often. That’s not to say that USAG and TAGS can’t be traded right now, however: The underlying liquidity of both funds is strong, and investors working with a market maker in size should be able to tap into that effectively. Just be careful, and don’t even think about going in with a market order.

 

Find your next ETF

Reset All