Picking The Right ETF For A Soybean Rally

December 04, 2012


The other two options, the iPath Pure Beta Grains ETN (NYSEArca: WEET) and the iPath Pure Beta Agriculture ETN (NYSEArca: DIRT), have large positions in soybeans—38 percent and 32 percent, respectively—but hold other commodities as well. They cost just 0.85 percent, but are so thinly traded that they may prove to be just as expensive when all-in costs are taken into account.

WEET and DIRT have median daily volumes of zero, which means that, on most days, not a single share changes hands. Unsurprisingly, both also tend to trade at wide spreads: WEET’s average spread is over 1.25 percent and DIRT’s is 0.49 percent.

In comparison, SOYB has a median daily volume of about $300,000—also not ideal, but much better than zero—and an average spread of just 0.10 percent.

Of course, in the world of ETFs, exchange-based liquidity doesn’t tell the whole story: Larger traders who are interested in any of the three funds should contact a liquidity provider to create new shares rather than wade into a shallow liquidity pool.

While it’s a little hard to read the chart below thanks to WEET’s and DIRT’s poor trading volume, it’s easy to see that—as would be expected—SOYB does the best job of delivering the returns of soybeans. WEET and DIRT have only participated in the recent rally to a limited extent.

Two-Week Soybeans ETF Performance vs. Soybeans

2-week soybeans ETF performance vs soybeans

If you’re trying to make a bet on soybeans without the hassle of opening and managing a futures account, SOYB is it.

At the time this article was written, the author held no positions in the securities mentioned. Contact Carolyn Hill at [email protected].


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