Teucrium Plans A Different Kind Of Commodity ETF

by on April 27, 2011 | ETFs Mentioned:

Teucrium, the Vermont-based firm behind the ultra-popular Corn Fund (CORN) that has plans to launch several additional commodity-specific ETPs, has laid the groundwork for another fund that would approach exposure to commodities in a new way. In a recent SEC filing, the firm detailed the Teucrium Agricultural Fund, which would offer exposure to agricultural commodities through other Teucrium products. The proposed ag fund, which would trade under the ticker TAGS, would seek to deliver daily changes equal to a weighted average of the NAVs per share of four other Teucrium products:

  • Teucrium Corn Fund (CORN)
  • Teucrium Wheat Fund (WEAT)
  • Teucrium Soybean Fund (SOYB)
  • Teucrium Sugar Fund (CANE)

CORN launched nearly one year ago, and has already accumulated nearly $100 million in assets. The other three products have not yet debuted; Teucrium outlined plans for those products in an SEC filing last June, along with natural gas (NAGS) and crude oil (CRUD) funds. NAGS and CRUD debuted earlier this year [see all Oil & Gas ETFs].

The proposed agricultural fund would be rebalanced “generally on a daily basis” to maintain a 25% weighting to each fund.

Unlike many commodity ETPs that focus on next-to-expire futures contracts, Teucrium’s Corn Fund spreads exposure across multiple maturities–a methodology designed to reduce the effects of backwardation and contango on returns. CORN allocates 35% to the second-to-expire CBOT contract, 30% to the third-to-expire CBOT contract, and 35% to the CBOT contract expiring in the December following the expiration month of the third-to-expire contract. The proposed sugar, soybeans, and wheat products would employ similar tactics, though the specific contract months would vary by commodity [see Understanding Contango and Commodity ETFs: Q&A With Sal Gilbertie].

New Take On Agricultural Exposure

TAGS would deliver more targeted exposure to agricultural commodities than many products currently on the market. The PowerShares DB Agriculture Fund (DBA), the largest ETF in the Agricultural Commodities ETFdb Category, includes exposure to cattle, cocoa, coffee, cotton, and lean hogs in addition to the natural resources that would be included in TAGS.

The proposed fund would also be unique with respect to its structure; TAGS would be a fund of funds, investing not directly in futures contracts but in other ETFs. The “ETF of ETFs” structure is relatively common; according to data from the National Stock Exchange, there were 23 such products at the end of the first quarter with aggregate assets of about $870 million. But most of those products are equity funds or ones that spread exposure across multiple asset classes. The AdvisorShares Cambria Global Tactical ETF (GTAA) is the most popular ETF of ETFs; that fund includes stock, bond, commodity, and currency ETFs [see GTAA holdings].

TAGS would be the first ETF to deliver exposure to commodities through the ETF of ETF structure. According to the SEC filing, TAGS would not pay the fund sponsor a management fee, but would indirectly pay its proportionate share of each underlying fund’s management fee. CORN and the proposed single-commodity Teucrium products charge 1.0% annually [see more on CORN's Fact Sheet].

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Disclosure: No positions at time of writing.