ETF issuer Teucrium has a pedigree in agricultural and commodities-based markets back to the launch of its CORN ETF in 2010. Jake Hanley, Managing Director and Senior Portfolio Specialist of the firm explains that Sal Gilbertie, CEO and President of Teucrium wrote the first Ethanol swap contract back in the day and observed the first iteration of commodities-based ETFs.
Gilbertie watched those early products based on oil and thought he could do better in terms of managing the way they used futures to gain access to their underlying markets. Rolling 100 per cent of the portfolio each month into futures meant that a negative roll yield could impact the portfolio. He also noted that corn is one of the most important commodities in the world and becoming more integral in the energy markets.
The firm has USD430 milllion under management in eight ETFs, including five legacy products and three new ones, including a base metals ETF, with a long/short strategy. OAIA, the long/short agriculture and OAIB, the base metals product are based on long/short indices designed by AiLA Indices who use AI to build their indices, first published in 2017.
Hanley says: “Coming out of 2021/2022, we anticipated that agriculture prices would come down and discussed building out our own strategy but AiLA already had a long/short agriculture index with a five year track record which has been published since January 2018 through December 2022, and had compelling numbers with a Sharpe ratio of 1.9 and an average annual return of 16.78 per cent, so we decided to launch the long/short strategy as an ETF.”
It also became clear to Teucrium that there was an opportunity for a product based on base metals, driven by the move into sustainable energy and the metals that play a key role there.
“All commodities trade on supply and demand, which means that there are times where production is ample and other times where supply is not keeping up with demand,” Hanley says, as in copper this year, where there has been ample supply relative to demand.
Teucrium focuses on distributing its products to financial advisers and institutional investment managers.
“In 2022 stocks and bonds went down but commodities did well and got more attention, but in 2023, commodity prices have lagged and we can help generate better outcomes in commodities by incorporating diversified strategies including agriculture and base metals but also incorporating long/short strategies,” Hanley says.
The underlying index for OAIB, based on base metals, from AiLA has seen average annual performance of 15.7 per cent from 2018 to 2022 and a Sharpe ratio of 1.86.
“We track the two indices as closely as possible, Hanley says. “The Sharpe ratios prove to me that these are actual track histories, with audited results, and leads me to wonder why hasn’t anyone else done this and the answer is that there are few ETF providers in the US who have the acumen and experience in trading futures that we have.”
