Thomas Barwick/DigitalVision via Getty Images
Tucrium Wheat Fund ETF (Weight) is a low-cost futures exchange-traded fund designed to provide investors with information about the price of wheat futures. Rather than investing in a diversified commodity index like most commodity-based ETFs, WEAT offers single-commodity exposure for those who want direct exposure to wheat price changes, whether as a speculative trade or as an investment hedge. Given that WEAT is a passively managed strategy, investors should not expect excess returns beyond price changes in wheat futures.
About Tucrium Wheat Fund ETF
Weight was launched By Tucrium on the NYSE Arca Exchange on September 19, 2011. Comparable to peer commodity ETF strategies, this strategy has a moderate net expense ratio of 62 bps. At the time of writing, WEAT exhibits narrow liquidity with net assets of $292 million and an average share price change of $18 million on a daily basis.
search for alpha
WEAT was designed to track the Teucrium Wheat Index (TWEAT), which is a measure of the weighted average combining 3 ranked futures contracts for wheat. WEAT will invest 100% of the funds in the futures contracts making up TWEAT and will not apply any leverage to the fund. WEAT is considered an indirect investment in wheat as a commodity, given that the holdings are futures derivatives.
The portfolio is made up of 3 different aspects: short-, medium- and long-term exposures. The Fund will typically achieve this exposure by investing approximately 35% in short- and long-term futures contracts and 30% in medium-term futures contracts. As per WEAT’s current holdings, short-term exposure could be up to 2 to 3 months until expiry, medium-term exposure could be up to 6 months till expiry, and long-term exposure could be up to 1.5 years. In addition to wheat futures contracts, WEAT may invest in other assets with additional funding, such as investment-grade paper or other interest-bearing assets. For example, WEAT is owned by Goldman Sachs Group, Inc. There are commercial papers of companies like.G S), Sherwin-Williams Company (SHW), and Marriott International, Inc. (march), among others. This is so that it can generate some interest from relatively safe securities on the parked funds.
Why invest in commodities?
Commodities are generally viewed as market hedges, exhibiting limited correlation with the broader equity market. While most commodity strategists offer diversified or managed exposures, WEAT offers exposure solely to wheat futures, effectively increasing exposure by comparison.
Commodity futures are traded largely among speculative traders seeking to profit on price spreads as well as hedge pricing risk among commodity producers. Given the extensive depth of trading between producers and traders, commodity futures markets are generally liquid and can reflect the expected price of the underlying commodity over time. As the futures contract approaches expiration, the contract will begin to converge with the spot price of the underlying commodity, allowing the contract holder to sell the contract at a premium or discount to the spot price and/or roll over to the next period for continued exposure.
investor suitability
WEAT may be best used by speculative traders seeking direct exposure to the wheat market. While commodity futures strategies are generally viewed as market hedges, investing in a single commodity can have the same market risks as the equity market. If an investor buys General Mills, Inc. WEAT can also be used to hedge risk when holding equities tied to producers of wheat-related products such as cereals or bread.gis) or Flowers Foods, Inc. (flow). WEAT can also be used as a market indicator for the performance of these companies, as wheat is considered an input cost; By combining the Consumer Price Index (CPI) to get information about the general direction of selling prices of products such as bread and cereals with the general price of wheat, investors can get information about how these companies may perform in the future.
weight related risks
WEAT is a single-commodity ETF designed to provide investors with information about changes in the price of wheat, including certain risks that should be considered before making a final investment decision. WEAT is a passively managed investment strategy and offers limited growth potential beyond price changes in relation to the underlying commodity, meaning that WEAT will not attempt to earn alpha for investors. This is exemplified by its ~80% decline since inception. However, there have been notable periods when it saw a significant price increase, such as early to mid-2022.
While many investors use commodity portfolios to hedge market risk, investing in a single commodity may carry greater risk due to the speculative nature of commodity pricing. The price of wheat and wheat futures can be affected by many external factors, such as weather, international trade, government policies, fertilizer prices, drought, interest rate policy and inflation, among others.
final thoughts
WEAT can be used as a trading vehicle by investors to invest directly in wheat futures. As a passively managed ETF, WEAT will provide direct exposure to a basket of wheat futures without the intent to earn additional returns on the fund. WEAT can be considered a speculative trading vehicle given its single-commodity exposure and cannot effectively hedge against market risk like a diversified commodity fund.
This article answers three main questions about WEAT:
- What is WEAT’s relation to wheat prices and what is its share?
- What risks come with WEAT?
- How should WEAT be used in a portfolio?
editor’s Note: This article is intended to provide a general overview of ETFs for educational purposes only and, unlike other articles on Seeking Alpha, does not provide any investment opinions about ETFs.