Will Teucrium’s New ETFs Fly?

September 20, 2011

 

 

Sugar

The Teucrium Sugar Fund (NYSEArca: CANE), on the other hand, is joining a segment that already has competitors. The iPath Pure Beta Sugar ETN (NYSEArca: SGAR), and the iPath Dow Jones – UBS Sugar Subindex Total Return ETN (NYSEArca: SGG) together have $83.5 million in assets.

Whether CANE will cannibalize other funds in its segment or attract new assets remains to be seen. Still, CANE is the first fund invested solely in sugar that is not in an ETN structure. CANE avoids the credit risk attached with the iPath funds, and provides a lower tax rate for short-term investors.

CANE’s strategy is in part similar to SOYB, investing in second- and third-month contracts. But the remaining 35 percent of the fund’s assets are invested in March contracts instead of November—a difference that reflects an attempt to optimize returns in the respective markets.

One factor worth mentioning about CANE and its competitors in ETN wrappers is that the sugar market is in backwardation—the opposite of contango—when futures contracts are priciest in the here and now and ratchet downward each succeeding month on the futures curve.

A backwardated price structure allows the fund to buy new contracts that are cheaper than the ones being replaced, which is likely to help CANE’s returns, as well as those of its competitors.

Wheat

The Teucrium Wheat Fund (NYSEArca: WEAT) may be the fund poised to attract the most assets of the company’s three new ETFs.

To begin with, it’s the first fund to offer pure exposure to wheat futures. The United States is one of the largest wheat producers in the world, and it’s a commodity that’s closely followed as a gauge of food prices.

Unfortunately, the wheat market is currently suffering from rather steep contango. The current open-interest-weighted roll yield of wheat is a whopping 20.12 percent. Investors should be very wary of entering this market in its current form.

It therefore seems likely that roll costs may hurt returns for WEAT’s owners. We’ll just have to wait and see if WEAT’s strategy of owning second-to-expire, third-to-expire and December contracts can limit the amounts lost to contango.

Conclusion

All three new Teucrium funds provide something new. SOYB and WEAT are the first to provide pure exposure to their respective commodities, and CANE is the first non-ETN for sugar.

However these funds work out for Teucrium and for investors, at least one thing is already clear: They serve as examples of the ETF industry providing investors with exposure they can’t get elsewhere.

 

Find your next ETF

Reset All