Vermont Firm Files To Offer Corn ETF Through ALPS

March 29, 2010

Teucrium Trading, LLC, an investment firm based in
Brattleboro, Vt., filed with the Securities and Exchange Commission to offer a corn ETF that tracks three separate Chicago Board of Trade corn futures contracts, making it the first to offer investors pure exposure to the grain.

The Teucrium Corn Fund will track a daily weighted average of closing settlement prices for the second-to-expire CBOT futures contract, weighted at 35 percent; the third-to-expire contract, weighted at 30 percent; and the final 35 percent based on the contract expiring in the December following the expiration of the third-to-expire contract. It will trade on the NYSE under the symbol “CORN,” the filing said.

CORN's strategy of blending futures should help mitigate the impact of contango, a condition in which futures with further-out expiration dates cost more than those with nearer expiration dates. This can erode fund returns because managers have to pay up when they “roll” positions from expiring contracts to later-month ones to maintain exposure. U.S. Commodity Funds addressed contango-related problems with its natural gas commodity ETF (NYSEArca: UNG) by rolling out a sister natural gas fund (NYSEArca: UNL) that tracks 12 successive futures contracts instead of UNG’s single contract.

While CORN won’t have direct competitors, two grains ETNs exist—the iPath DJ-UBS Grains Subindex Total Return ETN (NYSEArca: JJG) and the Elements MLCX Grains Index Total Return ETN (NYSEArca: GRU)—that include corn as part of a mix of wheat and soy. ETNs are debt issues designed to track returns of a given index or commodity that are backed by the good faith of the issuer. Unlike the two broader grain ETNs that offer diversification, CORN will be subject to corn-centric weather and crop health risks. Still, like many niche exchange-traded products, its laserlike focus could be valuable to some investors.

The ETF will also invest in corn swaps that are cleared through the CBOT or its affiliates, the March 26 filing said.

The ETF will have a 1.00 percent annual management fee, according to the filing. The filing didn’t say when Teucrium planned to launch the fund.

The fund will be marketed by Alps Distributors Inc., a Denver-based broker-dealer.

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