After launching in 2011, the Teucrium Wheat Fund (WEAT) lay mostly dormant for over a decade. But its fortunes have shifted, and the fund has gathered $260 million in assets since the start of the year. These flows account for two-thirds of the fund’s current assets, which currently stand at $386 million.
Interest in WEAT has been driven by sharp price increases due to the Russian invasion of Ukraine. The two countries are among the 10 largest producers of wheat in the world and together, are responsible for nearly a third of global exports.
The rush of interest caused WEAT to temporarily halt creations due to the fund’s structure as a commodity pool. Commodity pools have their benefits, but require regulatory permission to create shares beyond a pre-set number.
WEAT Still Trading
Though creations have been halted, redemptions are still allowed. Investors are also still able to trade the ETF on the secondary market. However, a disconnect between price and NAV occurred, with the ETF trading at a premium. Rather than being due to the creation halt, this premium occurred due to the lock limit of the underlying futures contracts.
Sal Gilbertie, CEO and founder of Teucrium ETFs, explained that this performance is an example of why the ETF structure works: “When wheat futures locked at daily price limits, the ETF NAV no longer reflected the fair market value of those same wheat futures contracts. But the WEAT ETF continued trading and reflected the fair market value of the wheat futures it was holding as if those futures continued to trade without price limit restrictions.”
In other words, the price of the ETF was a more accurate measure of the value of the underlying futures when the underlying NAV was limited due to the price limit.
The flows into WEAT are especially impressive given the fund’s expense ratio of 1.14% and issuance of a K-1, which can cause headaches for some investors at tax time.
Though WEAT is Teucrium’s best- performing ETF of the year so far, three of its other four ETFs have also gained at least 20% this year.
The Teucrium Corn Fund (CORN) is also seeing investor interest. The ETF has gathered nearly $45 million since the start of the year, with Ukraine being the fourth largest producer of corn.
Though the creation halt for WEAT is temporary until Teucrium receives regulatory approval to create new shares, investors should be aware that the fund could see larger-than-normal deviations between price and NAV until then.
And though CORN may not see significant flows that would run up against its predetermined share limit, the limitations of the structure are important for investors to understand before investing in these types of ETFs.