Recent years have seen the launch of hundreds of new exchange-traded products, many of which offer increasingly granular exposure to various asset classes. The latest innovation comes in the commodity space, where Vermont-based Teucrium Trading LLC filed with the SEC for an ETF that invests in Chicago Board of Trade Corn Futures. The Teucrium Corn Fund (CORN) would hold a portfolio consisting of three separate corn futures contracts, including:
- 35% in the second-to-expire CBOT Corn Futures Contract
- 30% in the third-to-expire CBOT Corn Futures Contract
- 35% in the Corn Futures Contract expiring in the December following the expiration month of the third-to-expire contract.
So CORN would fall somewhere in the middle of the “contango” continuum for futures-based exchange-traded products. The fund would “roll” its holdings less frequently than ETFs like the United States Natural Gas Fund (UNG) that invest only in near-month contracts, but less frequently than UNG’s cousin, the United States 12 Month Natural Gas Fund (UNL), which invests in the near-month contract and the contracts for the following 11 months.
The impact of contango–an upward-sloping futures curve–on bottom line returns can be significant in commodity products, a fact some investors have learned the hard way (see Three ETFs That Could Be Crushed By Contango). The market for corn futures in currently contangoed; December 2010 contracts cost about 10% more than contracts expiring in July (the second-to-expire contract).
CORN could become the first U.S-listed pure play corn ETF. Corn receives a minor allocation in most diversified commodity products (it makes up about 5.6% of DBC and 7.0% of DJP) and makes up a major slug of the two grains ETPs currently available. The iPath Dow Jones-UBS Grains Total Return ETN (JJG) gives corn a weighting of nearly 36%, while the ELEMENTS MLCX Grain ETN (GRU) gives an allocation of about 27%. Both JJG and GRU are structured as exchange-traded notes (ETNs), meaning that they are exposed to the credit risk of the issuing bank. CORN would be structured as an ETF.
CORN’s expense ratio is listed at 1.0%, making it one of the more expensive commodity products; JJG and GRU both charge an expense ratio of 75 basis points (see the Five Most Expensive ETFs).
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Disclosure: No positions at time of writing.