Teucrium Plans Big Commodities ETF Push

June 18, 2010

Teucrium Trading makes a big push into commodities ETFs in a bid to get a piece of the decade-long rally that still seems to have some steam left.

Teucrium Trading LLC, the Vt.-based firm that rolled out a corn ETF this month, filed reams of paperwork with the Securities and Exchange Commission to expand further into the world of commodities ETFs, including funds that target crude oil, natural gas, sugar, soybeans, natural gas and wheat.

Many commodities are in their second decade of a bull run that is linked closely to economic development in emerging market countries such as China, India and
Brazil. Commodities ETFs are relatively new and affordable tools that give smaller investors easier access to materials than directly obtaining their investment exposure through various futures markets.

Teucrium’s strategy of blending futures contracts could 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 lower-priced expiring contracts to higher-priced later-month ones to maintain exposure.

The company said all the proposed funds would trade on the New York Stock Exchange and would have management fees of 1.00 percent. It wasn’t clear from the five separate filings how other administrative charges might affect the overall expense ratios. The company’s existing fund, The Teucrium Corn Fund (NYSEArca: CORN), has a total estimated expense ratio of 1.71 percent.

Investment Strategies

The proposed funds and their respective strategies are:

  • The Teucrium WTI Crude Oil Fund (NYSEArca: CRUD) will invest in different NYMEX oil futures contracts, according to the related S-1 filing. The fund will hold the nearest to the spot June or December contract weighted at 35 percent; the June or December contract following the aforementioned contract and weighted at 30 percent; and the next December contract that immediately follows the aforementioned and also weighted at 35 percent.

 

  • The Teucrium Natural Gas Fund (NYSEArca: NAGS) will hold the nearest to the spot March, April, October and November NYMEX gas futures contracts, each equally weighted at 25 percent, according to the filing.

 

  • The Teucrium Sugar Fund (NYSEArca: CANE) will invest in the global benchmark “Sugar No. 11” ICE futures contract, according to the SEC filing. CANE's strategy will involve holding the second-to-expire sugar futures contract weighted at 35 percent; the third-to-expire contract weighted at 30 percent; and the contract expiring in the March following the expiration month of the third-to-expire contract.

  • The Teucrium Soybean Fund (NYSEArca: SOYB) will invest in a mix of CBOT soybean futures contracts, according to the filing. The blend will include the second-to-expire soybean contract, weighted at 35 percent; the third-to-expire contract weighted at 30 percent; and the contract expiring in the November following the expiration month of the third-to-expire contract, also weighted at 35 percent.

  • The Teucrium Wheat Fund (NYSEArca: WEAT) will blend different months of CBOT wheat futures contracts in the portfolio, according to Teucrium's filing. Specifically, the ETF will own the second-to-expire wheat contract, weighted at 35 percent; the third-to-expire contract, weighted at 30 percent; and the contract expiring in the December following the expiration month of the third-to-expire contract, also weighted at 35 percent.

 

CORN’s Strategy

These strategies should sound familiar: CORN, Teucrium’s corn-focused ETF that began trading June 9, also tracks a daily weighted average of closing settlement prices for three different contracts. CORN holds 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.

 

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