Despite Downtrend, This ETF Is Ahead of Commodities Indexes

After spiking last summer, agricultural commodities have been under pressure. Despite the downtrend, however, the Teucrium Agricultural Fund (TAGS) has been able to outperform major agricultural commodities indexes.

TAGS is down about 12% within the past year as the supply pressures that elevated agricultural commodities when Russia invaded Ukraine have been subsiding. Still, TAGS is faring better than associated indexes, namely the S&P GSCI Agriculture index, which is down 21% in the same time frame and the Bloomberg Agricultural Subindex, which is down 15%.

Given this 12-month trend, prospective investors looking to add agricultural commodities to their portfolios, but are wary of the price volatility, may want to give TAGS a look. There are economic forces to help buoy prices of agricultural commodities, such as the price of food. This can help keep ag commodity funds afloat until a supply shock forces a reversal into a bullish trend.

“If you look historically after periods of inflation, there’s really no period you could point to where [food]prices go back down,” said Steve Cahillane, chief executive of snack giant Kellanova, in a Wall Street Journal report. “They tend to be sticky.”

In the meantime, TAGS could be in an area of value for investors to buy the dip.

TAGS Chart

TAGS data by YCharts

A Low-Cost Fund of Funds

TAGS is also a compelling option given its low 0.13% expense ratio, which is beneficial in the current macroeconomic environment fraught with high inflation. It is an ideal way for ingress into agricultural investing by combining various Teucrium funds according to their respective commodities.

For diversification purposes, TAGS offers a perfect complement to a traditional 60/40 stock/bond portfolio with uncorrelated assets exposure, all in the convenience of one dynamic ETF. The fund combines exposure to Teucrium funds focused on corn, wheat, soybeans, and sugar. Traders or long-term investors can focus on the fund for broad-based exposure or the individual funds for a more focused, concentrated approach in specific commodities.

Short-term traders can also use TAGS to play the volatility of ag commodities prices, but they risk tying up trading capital until prices trend higher again. As such, traders looking for a bull run in commodities may not have the proclivity to play the waiting game.

For the long-term investor willing to ride out the current downtrend, patience will continue to be key. If broad commodities continue to trend lower, investors can subsequently buy the dips and add to their ag commodities portfolio. As mentioned, the diversification benefits will still be present.

“Agricultural commodities have a historically low correlation with U.S. equities making TAGS a potentially attractive option for portfolio diversification,” noted Teucrium on the TAGS product website.

The funds featured in TAGS:

For more news, information, and analysis, visit the Commodities Channel.