In response to a blog written by IndexUniverse ETF Analyst
Carolyn Hill that was posted to our website on April 3, 2012, we
have invited Teucrium Trading's Sal Gilbertie, President and Chief
Investment Officer, to a Q&A interview with IndexUniverse.com.
The conversation is as follows.
Why did Teucrium Trading, LLC file an 8-K on April 4, 2012
clarifying certain statements in the article "Why I Won't be Buying
As a result of the article referenced, from which, in Teucrium's
view, investors might infer that, as described in the article --
"TAGS pretty much hid its expense ratio…" -- Teucrium filed the 8-K
to ensure that investors have complete information needed to
evaluate this article. The 8-K can be found on the TAGS website,
The fundamental purpose of TAGS is to provide a method for
investors to diversify by investing indirectly in the underlying
funds -- (NYSEArca:CORN, (NYSEArca:SOYB), (NYSEArca:CANE) and
(NYSEArca:WEAT). In this regard, the fund's prospectus contains
extensive disclosure about the underlying funds, which Teucrium
Trading believes makes clear to investors that the underlying funds
are separate funds.
TAGS provides a mechanism by which an investor can achieve
diversification in the underlying funds. If an investor were
ambivalent to the rebalancing feature of TAGS, then the investor
would not need to buy TAGS. Instead an investor could purchase the
underlying funds directly and would then not have to pay the direct
fees, identified as an estimated 0.32 percent, associated with
TAGS. However, in either case the investor would pay fees
associated with the underlying funds.
In part, the article focused on management fees paid to Teucrium
Trading. By way of clarification, there is no direct management fee
paid by the fund to the sponsor. There is an annual management fee
of 1.00 percent based on the average daily net assets of each
underlying fund that is deducted from such underlying fund's
assets, which were disclosed six different places in the
The article also refers to other direct and indirect expenses
paid by investors in the fund. The total expense ratio is disclosed
and discussed on page 34 of the Fund's prospectus. The disclosure
in this section, and in the fees to be paid by the fund and the
underlying funds on page 70, together, in the view of Teucrium
Trading, provide full and fair disclosure of the total fees, direct
and indirect, and identified as an estimated 1.60 percent on page
34 of the prospectus.
Teucrium takes its role as a sponsor of publicly traded funds
seriously and endeavors to provide all investors access to
agricultural and energy commodities through accessible,
thoughtfully designed and managed exchange-traded products.
In addition to the prospectus disclosure discussed above,
Teucrium Trading posts each evening to the website for each
underlying fund and TAGS, all holdings, closing prices, pending
trades, trade prices, number of pending creation baskets and
redemption baskets, if any, in addition to net asset value, net
asset value per share, 4 p m. Eastern time closing price and 4 p.m.
bid/ask midpoint. Teucrium Trading believes this provides investors
complete transparency in its holdings each trading day.
Why is it harder to compare TAGS to other funds out there
TAGS is a fund of funds and invests in our four core agricultural
ETPs - corn, soybeans, wheat and sugar -- symbols:'CORN,' 'SOYB,'
'WEAT' and 'CANE.' It's really a first of its kind, so it
might be a little harder for the financial press to find a true
comparison. We enjoy discussing the structure of our funds, and
welcome the opportunity to explain them to anyone who is
The investment objective of the fund is to have the daily
changes in percentage terms of the shares' net asset value ("NAV")
reflect the daily changes in percentage terms of a weighted average
of the NAVs per share of the four underlying funds. TAGS
seeks to achieve its investment objective by investing in each of
the underlying funds to achieve a 25 percent dollar weighting in
each. TAGS assets will be rebalanced by Teucrium to maintain the
approximate 25 percent allocation to each underlying fund.
So what makes TAGS a better deal than other agricultural funds out
One is the basic design. We are not in the spot month, but focus on
the investment across multiple crop years specific to each
commodity. This gives the investor a broader investment
timeframe. Also, this design helps to mitigate the effects of
contango and backwardation. Second, we invest in the four core
agricultural commodities on which the world depends for food,
animal feed and often fuel.
What about contango and backwardation?
TAGS, because it holds our Teucrium agricultural funds, is designed
to mitigate, as much as possible, the effects of contango and
backwardation. If you are a buy-and-hold investor, those are the
two things that can eat away at your returns. So something that is
not designed to be efficient in mitigating those two things is fine
to trade short-term. Therefore, they are often very liquid and very
good products. But investors who are buy and holders for a couple
of months or a couple of years really need to be aware of the
benchmark design and be sure that it mitigates contango and
And the primary reason that your funds mitigate contango is that
that they don't hold spot?
Yes, they don't hold spot -- and they are designed around the
specific nuances of both seasonal and volume patterns specific to
each commodity. So they are designed around the commodity; they are
not financially engineered. The CORN fund was not designed to beat
spot but last year it did beat spot. CORN, for instance, uses the
December contract, which is the month used by most farmers for
their hedging purposes as its anchor month. And it has a roll
schedule based upon the calendar that minimizes the effects of
contango. In addition, it holds second- and third-month futures,
and December as a swing month.
What is the seasonal pattern for these commodities?
The seasonal pattern that is played out more often than not is
playing out again-soybeans and corn tend to make a seasonal low in
the fourth quarter because of harvest time. All l of the supply for
the year is harvested all at once. The corn futures contract for
the following year-December corn futures-- tends to have more
cyclical lows in either October or December. For the last 23 years,
there have been more cyclical lows set of the December contract of
the following crop year set in October or December than of any
Teucrium was the first to offer single-commodity agricultural ETFs?
But what other products are out there?
Most other single agricultural commodity investment vehicles are
exchange-traded notes (ETNs). These are basically debt instruments,
and may not provide as much transparency in their holdings. For the
investor looking to stick with a specific group of known
commodities in transparent investment products, the Teucrium funds
are worth a look.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2012 IndexUniverse LLC
. All Rights Reserved.