Getting exposure to agricultural commodities certainly comes with its own unique set of challenges. Given that, it helps to get nuanced exposure to a sound strategy. Consider, then, one which can capture upside and protect the downside despite volatility.
“Commodity prices can be extremely volatile, influenced by weather conditions, geopolitical tensions, and changes in supply and demand,” an Investopedia article confirmed.
To address this, incorporating a market strategy that effectively hedges against a downtrend in agricultural commodities has tremendous benefits. At the same time, when markets trend higher, the strategy should also be able to capture gains. This duality is inherent in the Teucrium AiLA Long-Short Agriculture Strategy ETF (OAIA).
“The Teucrium AiLA Long-Short Agriculture Strategy ETF delivers access to an agriculturally focused quantitative strategy that has the potential to achieve positive returns regardless of market direction,” the fund’s product website noted.
To accomplish its investment goal, OAIA tracks the AiLA-S033 Index. The index is composed of a sophisticated long-short investment strategy in the agriculture sector. It’s a strategy that used to only be available to institutional or qualified investors.
“The Index Provider seeks to convert data, such as historical pricing of inter-commodity spreads (the difference between two prices), specific to Component Futures Contracts, into Alpha,” the summary prospectus explains. “A market neutral strategy seeks to profit from both increasing and decreasing prices in one or more markets.”
As opposed to a retail investor individually buying the dips in agricultural commodities and eventually selling when prices reach a peak, Teucrium built this strategy into the fund. All the investor has to do is add shares of the fund and allow the strategy to play itself out. This is irrespective of what prices are doing in the background. As the product website states, investors benefit whether the ag market is “up, down, or sideways moving.”
Ag Commodities as a Diversifier
For long-term, buy-and-hold investors looking to minimize volatility in ag commodities, OAIA is a prime option. More importantly, investors still maintain the benefit of having ag commodities as a portfolio diversification tool.
With equities propelling much of the stock market gains, it’s easy to get tunnel vision until market volatility returns. It’s only until then that investors realize that diversification can provide an added edge, especially when including assets that are uncorrelated with the broader stock and/or bond markets.
“Commodities are such a good diversifier,” said Teucrium CEO Sal Gilbertie. “In these times when the stock market tends to go straight up without much of a pause, people aren’t looking at alternatives…as soon as there’s a blip, people start saying, ‘wait, what happened’?”
“That little, tiny holding inside your portfolio that might have been a multi-commodity index, it might have been out sugar fund last year, people call up and say ‘wow, there’s some green here’,” he added.
For more news, information, and analysis, visit the Commodities Channel.