A Long-Short Agriculture ETF

January 12, 2023

[This ETF Industry Perspective is sponsored by Teucrium.]

 

Positive Return Potential in Up, Down, or Sideways Moving Markets

Opportunities in Agriculture
Agricultural commodities are pervasive across the global economy and are used in many of the products we consume each and every day. For example, corn is primarily used to feed livestock, but it is also used to create ethanol, which is blended with gasoline. Wheat is mostly grown for human consumption, but it is also used as an ingredient in particle boards. Even soybeans, which are typically crushed to produce both cooking oil and soymeal, are increasingly cultivated for use as a biofuel. Additionally, commodities such as cotton, coffee, sugar, and even cocoa are so interwoven in our daily lives that it is hard to imagine life without them. 
Therefore, it is no surprise that demand for agricultural commodities is largely inelastic. In other words, higher prices historically have not had a significant impact on demand. In fact, the combined demand for coffee, corn, cotton, soybeans, sugar, and wheat has more than doubled since 1980. 

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While demand continues to march higher, production, and therefore supply, remains highly variable. As you can see on the chart below, production (dotted green line) does not always keep pace with demand. 

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Production is highly variable relative to consumption. In years where production exceeds consumption, the market is left with a surplus known as ending stocks.1 The higher the ending stocks, the higher the available supply. Maintaining an adequate level of supply is important.  There are years when consumption exceeds production and ending stocks are drawn down to help make up the difference. In such instances, prices historically move higher, coinciding with the reduction in ending stocks. The opposite is true of course, and prices trend lower in markets that are adequately supplied and/or are facing a surplus. 

Price Volatility
Agricultural futures markets have a reputation of being volatile, with considerable risk (especially when compared to tradition stock and/or bond markets). The volatility stems from the daily engagement between buyers and sellers trading at various prices throughout the day on the endless voyage of price discovery. Volatility presents both a challenge and an opportunity.

As an investor, the challenge and a possible opportunity is to be more right than wrong.  Volatility swings both ways, and prices can quickly change direction. Yet volatility presents an opportunity given an investor’s potential to profit from being on the right side of the market.

Since 2010, Teucrium has provided ETF investors with long-only futures price exposure to agricultural markets. By going long, an investor is on the right side of the market when futures prices are rising. If, however, prices turn lower, the investor must sell his position lest risk losing money, i.e., being on the wrong side of market.

When prices are moving lower, being on the right side of the market means holding a short position.2

A NEW SOLUTION

The Teucrium AiLA Long-Short Agriculture Strategy ETF
Ticker: OAIA
For investors seeking a strategy with the potential to profit regardless of market direction, Teucrium offers the Teucrium AiLA Long-Short Agriculture Strategy ETF. The fund seeks to track the total return performance (before fees and expenses) of the AiLA-S033 Index. OAIA provides investors with access to a quantitative strategy, informed by proprietary machine-learning technology. The strategy trades nine agricultural commodity markets:

This type of strategy has historically only been made available to qualified investors at the institutional level. Even today, long-short futures-based strategies are most commonly accessible through private placements and hedge funds. Given our experience in the futures-based exchanged-traded-product market, we recognize the opportunity to deliver sophisticated strategies via a low-cost, liquid offering.3  

Fund Facts
The Teucrium AiLA Long-Short ETF is registered under the Investment Company Act of 1940.  This means that investors can expect to receive the common 1099 tax form. The fund is listed on the New York Stock Exchange under the ticker symbol: OAIA. The fund carries an expense ratio of 1.49% per the prospectus dated 12/16/2022. 

As mentioned, the fund seeks to track the total return performance (before fees and expenses) of the AiLA-S033 Index. Actual fund performance will vary versus the index, as it is not possible to invest directly in the index. The AiLA-S033 Index has a published performance history dating back to January 2017.4

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Index performance from January 2017 – September 2022. Unlike fund performance, indexes are not subject to fees, expenses, or taxes. Indexes are unmanaged and direct investment is not possible. Fund performance will differ. Past performance is no guarantee of future results.

Why OAIA

  • Potential to benefit from up, down, or sideways-moving markets
  • Liquid, low-cost, quantitative5 long-short strategy
  • Transparent index methodology
  • Daily evaluation of market trading signals
  • May be positioned as the core agriculture holding in a diversified commodity sleeve
  • ETF traded on the New York Stock Exchange
  • Managed by Teucrium, provider of agricultural futures-based ETFs since 2010
  • No K-1 Tax Form

About AiLA
AiLA is a leading provider of alternative alpha strategies in the commodities sector. AiLA’s indices offer a systematic approach, utilizing proprietary machine-learning technology with the goal of turning data into alpha (i.e., generating returns in excess of the market). 

For more information on the AiLA and the AiLA-S033 Index, please visit:
https://ailaindices.com/AiLA-S033.php


The Teucrium AiLA Long-Short Agriculture Strategy ETF (ticker: OAIA)

For investors seeking price exposure to agricultural futures, the Teucrium AiLA Long-Short Agriculture Strategy ETF offers profit potential in up, down, and sideways-moving markets.

Visit www.teucrium.com to learn more.

 

Risks and Disclosure

Read the prospectus carefully before investing.

A copy of the prospectus may be obtained at: www.teucrium.com

The expressed views were those of Teucrium Trading, LLC as of 11/30/2022 and may not reflect the views of Teucrium on the date the material is first published or any time thereafter. These views are intended to assist in understanding certain factors that may contribute to the price of agricultural commodities or commodity futures. In no way do the views expressed constitute investment advice, and this document should not be considered as an offer to sell or a solicitation of an offer to buy securities outside of the United States of America. Any decision to purchase or sell as a result of any information or opinions expressed in this communication will be the full responsibility of the person authorizing such transaction. An investor should consider investment objectives, risks, charges, and expenses carefully before investing. The prospectus contains this and other information.

Investments involve risk. Principal loss is possible

 

Investments involve risk. Principal loss is possible

OAIA is a “non-diversified” fund and because it can invest a greater percentage of its assets in particular securities including agricultural commodities, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a diversified fund.  Agricultural commodities are affected by consumer tastes, demand, government, economic conditions, weather and seasonal factors and demographic trends. OAIA is a commodity pool regulated by the CFTC.  OAIA is new and has a limited operating history to evaluate.

Commodities and futures generally are volatile, and instruments whose underlying investments include commodities and futures are not suitable for all investors.

Futures investing is highly speculative and involves a high degree of risk. An investor may lose all or substantially all their investment. Investing in commodity interests subject each Fund to the risks of its related industry. These risks could result in large fluctuations in the price of a particular Fund's respective shares. Funds that focus on a single sector generally experience greater volatility. Futures may be affected by Backwardation: a market condition in which a futures price is lower in the distant delivery months than in the near delivery months. As a result, the fund may benefit because it would be selling more expensive contracts and buying less expensive ones on an ongoing basis; and Contango: A condition in which distant delivery prices for futures exceeds spot prices, often due to costs of storing and inuring the underlying commodity. Opposite of backwardation. As a result, the Fund’s total return may be lower than might otherwise be the case because it would be selling less expensive contracts and buying more expensive one.

The Fund’s short selling involves the sale of commodities. The short seller profits if the commodity’s price declines. If a shorted commodity increases in value, a higher price must be paid to cover the short sale, resulting in a loss.  The amount the Fund could lose on a short sale is theoretically unlimited.

The Fund employs a “passive management” approach that seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. There is no guarantee that the Fund will achieve a high degree of correlation to the underlying Index and therefore achieve its investment objective. Differences in timing of trades and valuation as well as fees and expenses, may cause the fund to not exactly replicate the index known as tracking error.

ETFs are subject to capital gains tax and taxation of dividend income. However, ETFs are structured in such a manner that taxes are generally minimized for the holder of the ETF. However, capital gains tax may be incurred by the investor after the ETF is sold.

An investor should consider investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other information which may be obtained by visiting or clicking on this link www.teucrium.com. Read the prospectus carefully before investing.

Teucrium Investment Advisors, LLC is an investment adviser in Burlington, Vermont and is a wholly owned limited liability company of Teucrium Trading, LLC. Teucrium Investment Advisors, LLC is registered with the Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Teucrium Investment Advisors, LLC only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Teucrium Investment Advisors, LLC’s current written disclosure brochure filed with the SEC which discusses among other things, Teucrium Investment Advisors, LLC’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov.

 


1 Ending stocks (also known as carry-out): The amount of a crop that will be available at the end of the crop year given the estimated or actual beginning stocks, production, and usage.

2 A short position is created when a trader sells a futures contract(s) to open a position with the intention of repurchasing the contract(s) (buying to close the position) at a lower price.

3 Redemptions may be limited and often commissions are charged on each trade, which could reduce returns. ETFs may trade at a premium or discount to their net asset value.

4 Returns are posted on AiLA’s website here: https://ailaindices.com/AiLA-S033.php as well as on the Bloomberg Terminal < AILAS033 Index >

5 Quantitative – aka systematic investing, is an investment approach that uses advanced mathematical modeling, computer systems, and data analysis to calculate the optimal probability of executing a profitable trade - https://www.risk.net/definition/quantitative-investing

 

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