While major-market indices in the United States have enjoyed tremendous gains since the beginning of 2013, things haven't been all peachy across the entire investing landscape. In the world of grains, there has been a world of hurt. Corn, soybeans, and wheat are all in their own personal bear markets, with declines accelerating in recent months. The declines were so precipitous, I've become interested in looking for a way to gain long-term exposure to those commodities.
With that in mind, I recently considered buying three commodity-focused ETFs; the Teucrium CORN fund (NYSEARCA:CORN), the Teucrium Soybean fund (NYSEARCA:SOYB), and the Teucrium Wheat fund (NYSEARCA:WEAT). Each of these funds provides unleveraged exposure to the futures prices of their respective commodity. The funds have also been designed to reduce the effects of contango and backwardation, something other commodity funds have struggled with in the past.
Over the years, there have been times I've come extremely close to finding the right investment product or the right investment opportunity for my portfolio's needs, only to discover one thing that prevents me from moving forward. This is exactly what occurred with CORN, SOYB, and WEAT. What was it that prevented me from moving forward with these three funds? Put simply, the extremely high expenses.
CORN's expense ratio checks in at 2.75%, which seems high until you look at those of WEAT and SOYB. WEAT sports an expense ratio of 3.74%, and SOYB takes the cake with an expense ratio of 3.97%. These types of expense ratios are simply unacceptable. After all, I'm not trying to invest in a hedge fund. I just want to buy some grains. Unlike a fund that makes cash distributions, which could offset the expenses, the sponsor of these funds does not expect to make cash distributions (according to the prospectuses).
As if that's not bad enough, there is, of course, the risk that gains in the funds won't be enough to offset the expenses over time. When you're dealing with expenses in the 2.75% to 3.97% range, even if the underlying commodity's price remains relatively flat over time, you'll likely watch your principal slowly erode.
Fortunately, there are plenty of ways to gain long-term inflation protection in a portfolio. And so I will set my sights elsewhere. If I want to trade corn, soybeans, or wheat, I'll certainly use the Teucrium ETFs mentioned above. For a buy-and-hold type of position, however, I need much lower expenses ratios.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.