Trading Grain ETFs

June 19, 2019 You mentioned CORN and WEAT. Do you use any other pure-play single-commodity ETFs, whether in the grain complex or in a different sector?

Engelbart: We also use the broad ag fund, DBA [the Invesco DB Agriculture Fund]. But it depends. We have a lot of different portfolios, so it depends on how specific we want to get with each client's account and how much risk they're willing to take. Why DBA, versus other ETFs or ETNs that also give you diversified exposure?

Engelbart: We have a series of mutual funds that hold much of our commodity ETFs; the fund then is responsible for the K-1 tax form that comes with the three ETFs I mentioned. When we allocate for client portfolios outside those funds, we become much more cognizant of the K-1.

Nobody really likes them, because they come too late, and it's just a headache for clients. Many of our clients have said, "We don't want K-1s; I don't care what we need to do."

So in that case, we'll use something like RJA [the Elements Rogers International Commodity Index-Agriculture TR ETN]. It gets into some pretty esoteric commodities, but still gives us that exposure. We use ETNs, which have a little more favorable tax treatment.

You know about DBC and PDBC [the Invesco DB Commodity Index Tracking Fund and the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF, respectively. Author's note: PDBC offers effectively the same exposure as DBC, but structured such that it avoids issuing a K-1 form]. If Invesco would make a "PDBA," if you will—a K-1 free version of DBA—that would probably be our preferred vehicle inside of client accounts. CORN and WEAT can be expensive funds to own and trade. Are you concerned about the cost of ownership? How do you factor it into your trading decisions?

Engelbart: Well, there are a couple things about the expense ratio. The sponsor fee—or how much Teucrium is actually getting—is actually 1%. What's listed gets into the 3’s. [Author's note: lists CORN's expense ratio as 3.65%]. That makes us cringe. But it's not accounting for the futures collateral that's offsetting that expense ratio. When you offset that, you get a much more reasonable expense ratio.

From a trading perspective, we haven't had any issues getting in or out of the product, given the liquidity of the futures market underneath it. Teucrium did a good job structuring the product to hold liquid futures contracts.

It holds the second month, the third month and the next December, which generally has a pretty liquid contract. even gives it a 5 out of 5 from a trading [block liquidity] perspective, last time I checked.

Like anything in the commodity space, obviously you've got to make sure you understand the product completely before you trade.

Contact Lara Crigger at [email protected]

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