HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hey everybody, welcome to HardAssetsInvestor.com. I'm Mike Norman, your host. Today we have Sal Gilbertie, founder of Teucrium Trading. Sal, thanks for coming back on the show. Good to see you again.

Sal Gilbertie, founder, Teucrium Trading (Gilbertie): My pleasure; good seeing you as well.

Norman: I know you've just launched a new ETF. It's an agricultural ETF. Why don't you tell us a little about it?

Gilbertie: That's correct. It's called the Teucrium Agriculturals  Fund. It's a fund of funds, so it actually buys equal weightings in our underlying single-commodity agricultural exchange-traded products. So people get an equal weighting of corn, soybeans, wheat and sugar — the big four of the agricultural sector basically.

Norman: What's the advantage of having it structured that way as opposed to having direct investment in those particular commodities?

Gilbertie: Well, if one's able to invest directly in commodities, that's probably the way to go. But we provide exchange-traded products so that most investors, ordinary people, and even institutions that may not trade futures, that certainly might not participate in the commodity supply chain, but need direct exposure or want direct exposure of commodities, we allow that to happen through an exchange-traded product on the New York Stock Exchange. And that's really a simple mechanism that people understand.

As far as agriculturals go, Teucrium's products all are designed to mitigate contango and backwardation.

Norman: That's one of the unique aspects of your funds, right?

Gilbertie: It is indeed. And so we only focus on the agricultural and energy sectors. Those are the commodities we know. We focus on where expertise happens to lie. And that allows us to structure what we feel is superior product.

If someone wants to participate in corn, soybeans, sugar or wheat and they don't have a futures account, the only way to do it is through an exchange-traded product. Sugar does have a note out there, but we are exchange-traded products. We like transparency, liquidity and the ease of understanding, and, of course, the safety of not having credit exposure.

Norman: Just to back up a little bit for people who might not know about contango, roll cost, just explain that, for some people who might be novices at commodity investing, and the ETFs, some of them — your underlying commodity might rise in price, but you might end up not seeing that particular security go up because of the roll costs, right?

Gilbertie: That's right. And contango is when the price of futures rises, going out. And futures contracts have a limited life like an option, if you will. And so when a futures contract expires, the exchange-traded product that holds futures really needs to roll those, and to keep their exposure, they buy another contract. If that contract's higher priced, you kind of lose some exposure. So in a rising market, that can hurt you.

The opposite of contango is backwardation. Contango and backwardation don't always hurt you, nor do they always help you. The best thing for an investor to do, who's going to trade long term, who's going to hold longer term — that's when contango and backwardation really affect one's portfolio — is to look for a product that's designed to mitigate those two things.

If you have a short-term time horizon, there's some excellent exchange-traded products out there that just hold the front month and move very quickly with the commodity, and they're fine products. But if you're an asset allocator, if you want longer-term exposure, if you rebalance annually or quarterly, you probably want something that mitigates contango.