When it comes to an exchange-traded fund (ETF) strategy, an innovative way to produce alpha may attract the attention of investors, but ultimately, it needs to produce. That’s exactly what the the Teucrium AiLA Long-Short Agriculture Strategy ETF (OAIA) is doing when compared to the broader S&P GSCI Agriculture index.
OAIA is up 2.5% thus far for the year, which, in a vacuum, may not raise eyebrows for prospective investors looking to add agricultural commodities to diversify their portfolios. But given the broader weakness experienced in the agricultural market, it’s defying the broader trend. In contrast, the S&P GSCI Agriculture index is down almost 1/4 percent for the year, making OAIA’s long-short strategy effective even in an overall downtrend.
When expanded to a one-year time frame for both OAIA and the index, the performance disparity is even more apparent. The S&P index is down 15%, while the ETF is less than half of that.
Again, with the S&P 500 up almost 11% for the year, the emphasis for gains may center around stocks, but there’s still a place for assets noncorrelated to the broader market, like agricultural commodities. Investors looking to add agricultural commodities certainly need to remember that the diversification aspect can’t be denied, but when you add a fund that can thrive in a market trending higher or lower, it opens up more opportunities for investment.
The Long and Short of OAIA
As mentioned, at the heart of OAIA is its long/short strategy, which tracks the AiLA-S033 Index. Its sophisticated long/short investment strategy was once only available to institutional or qualified investors with deep pockets, but now any retail investor can have access.
“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,” OAIA’s summary prospectus explained. “A market neutral strategy seeks to profit from both increasing and decreasing prices in one or more markets.”
An investor could mimic the strategy by purchasing the dips in agricultural commodities and eventually sell when prices peak. But OAIA offers a set-it-and-forget-it alternative. All the investor need do is add shares of the fund and allow the long/short strategy to play itself out. Again, this is irrespective of what prices are doing in the background, so even in a sideways market, investors can still reap potential gains.
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