Alpha-Beta Series: Agriculture ETFs. October 27, 2011, 2PM EDT

Transcription

1 Alpha-Beta Series: Agriculture ETFs October 27, 2011, 2PM EDT

2 Speakers: Dennis Hudachek ETF Analyst IndexUniverse Dave Nadig Director of Research IndexUniverse Sam Halpert Senior Analyst Van Eck Global Sal Gilbertie President & Founder Teucrium Trading LLC

3 Disclosures & Disclaimers This material must be accompanied by the prospectuses: teucriumsoybfund.com/pdfs/soyb-prospectus.pdf The Teucrium Corn Fund ( CORN ), the Teucrium Wheat Fund ( WEAT ), the Teucrium Soybean Fund ( SOYB ) and the Teucrium Sugar Fund ( CANE ), collectively the Teucrium Funds, have a limited operating history, so there is little performance history to serve as a basis for you to evaluate an investment in any of the Teucrium Funds. Investing in Commodity Interests subjects the Teucrium Funds to the risks of the commodity-specific market, and this could result in substantial fluctuations in the price of the shares of each of the Teucrium Funds. Unlike mutual funds, the Teucrium Funds generally will not distribute dividends to Shareholders. Investors may choose to use the Teucrium Funds as a means of investing indirectly in specific commodities, and there are risks involved in such investments. The Sponsor has limited experience in operating a commodity pool, which is defined as an enterprise in which several individuals contribute funds in order to trade futures or futures options collectively. Investors may choose to use the Teucrium Funds as a vehicle to hedge against the risk of loss, and there are risks involved in hedging activities. Commodities and futures generally are volatile and are not suitable for all investors. The Teucrium Funds are not mutual funds or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and are not subject to regulation thereunder. Shares of the Teucrium Funds are not FDIC insured, may lose value, and have no bank guarantee. All supporting documentation will be provided upon request. Foreside Fund Services, LLC is the distributor for the Teucrium Funds. NYSE: CORN NYSE: SOYB NYSE: WEAT NYSE: CANE 3 For Financial Intermediary Use Only Not For Use With Investing Public

4 Agricultural Commodity Access Using Futures-Based ETPs Futures ETP Benchmark Structure Considerations: Transparency Liquidity Leverage Exposure to the futures pricing curve Contango and backwardation mitigation Investment Time Horizon Considerations: Investment <30 days: First-generation ETPs and Indices with concentrated spot month investments Investment >30 days: Products with exposure to the forward curve, next generation ETPs and Indices NYSE: CORN NYSE: SOYB NYSE: WEAT NYSE: CANE 4 Backwardation: A market condition in which a future s price is lower in the distant delivery months than in the near delivery months. Contango: A condition in which distant delivery prices for futures exceed spot prices, often due to the costs of storing and insuring the underlying commodity. Opposite of backwardation.

5 Addressing Portfolio Risk Potential Benefits of Including Commodities Lower Risk and Higher Return Stocks Bonds Commodities 32 Return 8.7% Risk 11.6% Return 8.9% Risk 8.8% Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Stocks in this example are represented by the Standard & Poor's 500, which is an unmanaged group of securities and considered to be representative of the stock market in general. Bonds are represented by the 5-year U.S. government bond. Commodities are represented by the Morningstar Long-Only Commodity Index. An investment cannot be made directly in an index. The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes Morningstar. All Rights Reserved. 3/1/2011 Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that the Teucrium Corn Fund is likely to achieve a performance record similar to that shown. The Long-Only Commodity Index is a fully collateralized commodity futures index that is long all eligible commodities. 5 Not Representative of any Teucrium Products

6 Rogers International Commodity Index (RICI) ( As of October 14, 2011) Asset Allocation Corn Wheat Soybeans Sugar Total 4.75% 4.75% 3.35% 2.00% 14.85% Rogers International Commodity Index Agriculture (RICIA) ( As of October 14, 2011) Corn Wheat Soybeans Sugar Total % % 9.599% 5.713% % Reuters Jeffries CRB Index ( As of October 14, 2011) Corn Wheat Soybeans Sugar Total 6.00% 1.00% 6.00% 5.00% 18.00% Dow Jones UBS Commodity Index ( As of October 14, 2011) Corn Wheat Soybeans Sugar Total 7.50% 3.88% 7.34% 3.04% 21.76%

7 Agricultural Commodities Global Growth of Middle Class Increasing demand for agricultural commodities Less arable land Increased demand for consumer goods requiring raw materials and energy Forecasted Diversified diet, including meat, dairy and processed foods Forecasted 7 Sources: Forecast Graphs updated by U.S. Census Bureau as of December 2010

8 Agricultural Commodities Understanding the Importance Pervasive in the global economy Global growth of middle class Food inflation Agricultural Seasonality Futures Based ETPs Benchmark Structure 8

9 Agricultural Commodities Pervasive in the Global Economy Corn Wheat Livestock Feed Ethanol/Gasoline Oxygenation Exports BRIC Countries Exports Human Consumption Livestock Feed Sugar Ethanol Human Consumption Bio-Plastics Soybeans Exports BRIC Countries Human & Livestock Consumption Bio-Fuel 9 BRIC Countries Brazil, Russia, India and China,

10 This chart consists of two aspects of the market s seasonal pattern of prices for Front Month Corn Futures Contracts the most recent 15-year (solid line) and its most recent 5-year (dotted line), for the years 1996 to 2011, inclusive of the front month 2011 contracts. Thus, any evolution in the pattern may be perceived, as well as trends, tops, and bottoms coincident to both. The numerical index to the right measures the greatest historical tendency for the market to make a seasonal high (100) or low (0) at a given time. Past Performance is not an indicator of future results. Graph does not represent any indication that futures or funds will achieve similar results. Graph Created by Newedge as of August 2010

11 This chart consists of two aspects of the market s seasonal pattern of prices for Front Month Soybean Futures Contracts the most recent 15-year (solid line) and its most recent 5- year (dotted line), for the years 1996 to 2011, inclusive of the front month 2011 contracts. Thus, any evolution in the pattern may be perceived, as well as trends, tops, and bottoms coincident to both. The numerical index to the right measures the greatest historical tendency for the market to make a seasonal high (100) or low (0) at a given time. Past Performance is not an indicator of future results. Graph does not represent any indication that futures or funds will achieve similar results. Graph Created by Newedge as of August 2010

12 This chart consists of two aspects of the market s seasonal pattern of prices for Front Month SugarFutures Contracts the most recent 15-year (solid line) and its most recent 5-year (dotted line), for the years 1996 to 2011, inclusive of the front month 2011 contracts. Thus, any evolution in the pattern may be perceived, as well as trends, tops, and bottoms coincident to both. The numerical index to the right measures the greatest historical tendency for the market to make a seasonal high (100) or low (0) at a given time. Past Performance is not an indicator of future results. Graph does not represent any indication that futures or funds will achieve similar results. Graph Created by Newedge as of August 2010

13 This chart consists of two aspects of the market s seasonal pattern of prices for Front Month Wheat Futures Contracts the most recent 15-year (solid line) and its most recent 5- year (dotted line), for the years 1996 to 2011, inclusive of the front month 2011 contracts. Thus, any evolution in the pattern may be perceived, as well as trends, tops, and bottoms coincident to both. The numerical index to the right measures the greatest historical tendency for the market to make a seasonal high (100) or low (0) at a given time. Past Performance is not an indicator of future results. Graph does not represent any indication that futures or funds will achieve similar results. Graph Created by Newedge as of August 2010

14 MOO Market Vectors Agribusiness ETF Source: Bloomberg Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

15 Ag Correlations Source: Bloomberg Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

16 Corn 5 Year Daily Prices Source: Bloomberg Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

17 U.S. Corn Analysis Yield, Change in Supply, Crop Progress, Futures Return Source: Bloomberg Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

18 Inflation-Adjusted Farm Income Source: Bloomberg Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

19 Potash Pricing Source: Bloomberg Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

20 Fertilizer Affordability is High Source: World Bank; Fertecon: Blue Johnson & Associates; USDA; PotashCorp Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

21 Potash Quarterly EPS Source: Bloomberg Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue.

22 Alpha-Beta Series: Agriculture ETFs The Beta Story

23 Why ETFs for Ag Exposure?

24 Why not just invest in futures? No high minimum contract amount No leverage No Wheat Surprise!

25 Types of Agriculture ETFs MOO: Equity ETF COW: Futures ETN DBA: Futures ETF

26 Futures-Based ETPs

27 Broad-Based Issues to Consider: Which commodities am gaining exposure to? How are the commodities weighted? Where on the futures curve does the fund invest? How are these funds structured and what are the tax implications?

28 Futures-Based ETPs (Broad) Name Ticker AUM ($MM) Expense Ratio (%) PowerShares DB Agriculture DBA 2, Rogers ELEMENTS Agriculture ETN RJA ipath Dow Jones- UBS Grains ETN JJG ipath Dow Jones- UBS Agriculture ETN JJA ipath Dow Jones- UBS Livestock ETN COW

29 Composition Tilts DBA RJA JJA (No Livestock) Corn 12.5% Corn 13.6% Corn 26.2% Soybeans 12.5% Wheat (CBOT) 13.6% Soybeans 25.6% Sugar # % Cotton 12% Wheat 13.6% Live Cattle 12.5% Soybeans 9.6% Sugar 10.6% Coffee C 11.11% Coffee 5.7% Soybean Oil 9.8% Cocoa 11.11% Live Cattle 5.7% Coffee 8.8% Lean Hogs 8.33% Sugar 5.7% Cotton 5.4% Wheat 6.25% Soybean Oil 5.7% Wheat (Kansas Wheat) 6.25% Cocoa 2.9% Cattle (FeederCattle) 4.17% Lean Hogs 2.9%

30 20/10/ /12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/ /08/2011 DBA vs. RJA vs. JJA (3 Years) 75 DBA RJA 50 JJA

31 Futures Strategies Front Month (1 st Generation) Rogers RICI Series (RJA) ipath Dow Jones-UBS Series (JJA) Optimized (2 nd Generation) PowerShares DB Optimum Yield Series (DBA) ipath Pure Beta Series (SGAR) Laddered (2 nd Generation) Teucrium Funds (CORN) UBS E-TRACS (UAG)

32 Effects of Roll Yield Source: HardAssetsInvestor.com

33 Total Return vs. Front Futures Spot Source: S&P Commodities Market Attributes Report

34 Equity ETFs

35 Equity ETFs Name Ticker AUM ($MM) Expense Ratio (%) Market Vectors Agribusiness MOO 5, PowerShares Global Agriculture PAGG IQ Global Agribusiness Small Cap CROP Global X Fertilizers/Potash SOIL JefferiesTR/J CRB Agriculture CRBA

36 Holdings MOO PAGG CROP Monsanto 8.8% Monsanto 9.6% Tractor Supply 8.8% Potash Corp 7.4% Syngenta 8.4% Viterra 7% Deere 6.9% Wilmar International 7.5% Smithfield Foods 6.6% Syngenta 6.6% Potash Corp 7.4% Nisshin Seifun 4.4% Wilmar International 6.3% Mosaic 7% Nutreco NV 4.2% Archer Daniels 4.8% Archer Daniels 4.3% Charoen Pokphand 4.1% ICL Israel BRF Brasil Foods 4.8% Chemicals 4.1% Nippon Meat 3.9% Mosaic 4.3% SQM Chile 3.8% Ebro Foods 3.1% Agrium 4.1% Agrium 3.7% Graincorp 2.9% Yara International 4% K+S Ag 3.6% Toro Co 2.9%

37 MOO vs. PAGG (1 Year Returns) 20 MOO 15 PAGG

38 Correlations 1 Year MOO DBA RJA SPY MOO DBA RJA SPY

39 Futures-Based ETPs (Single) SPY MOO DBA RJA /07/ /08/ /09/ /10/2011

40 Fund Structure

41 Agriculture ETP Structures Open-Ended Funds: Equity ETFs Commodities Pools (Limited Partnerships): ETFs holding physical futures contracts Exchange-Traded Notes: Debt notes tracking futures-linked indices

42 Tax Implications Open-Ended Fund Commodities Pool (Limited Partnership) ETN Tickers MOO, PAGG DBA, CORN RJA, JJA Holdings Equities Futures Contracts N/A Max LT/ST Cap Gains Rate (%) 15/35 *23/23 15/35 Market to Market No Yes No Tax Reporting 1099 K *60% of gains taxed as LT, 40% of gains taxed as ST 23% is max blended rate

43 Q&A: Dennis Hudachek ETF Analyst IndexUniverse Matt Hougan Director of Research IndexUniverse Sam Halpert Senior Analyst Van Eck Global Sal Gilbertie President & Founder Teucrium Trading LLC

44 Thank you. For More Information: Indexuniverse.com Vaneck.com Teucrium.com