ETF Chart of the Day: Tastes Like Chocolate

ETF Trends

In the spirit of the Halloween holiday and especially for those chocolate lovers, we highlight the commodity Cocoa, which can be invested in via two little known ETPs.

NIB (iPath DJ-AIG Cocoa Total Return Sub-Index ETN, Expense Ratio 0.75%) is the larger of the two products, with $44.6 million in assets under management, averaging about 37,000 shares traded on a daily basis and the fund tracks futures prices in Cocoa.

The fund has been around since the middle of 2008. Several years later in 2011, iPath also launched CHOC (iPath Pure Beta Cocoa ETN, Expense Ratio 0.75%) to track Cocoa prices but the fund methodology is notably different than that of NIB. During the futures “roll” period, the index “may be comprised of two futures contracts” instead of just a single contract.

This is an important distinction as NIB utilizes only one futures contract in its methodology, and in commodities markets, this has been well documented that there can be potentially deleterious effects to portfolio returns due to issues of contango in the futures markets.

CHOC remains the smaller fund of the two, having only attracted $5 million in AUM which appears to be seed capital since inception.

Clearly however, the need for direct exposure to Cocoa futures is not something that every retail nor institutional investor has, so these funds may remain niche plays for commodity oriented managers whom like to play various agricultural related segments of those markets.

Cocoa exposure is more commonly gained via ETFs by portfolio managers (at least at this juncture) via broad based Agricultural commodity based ETPs like a GCC (Greenhaven Continuous Commodity Index, Expense Ratio 0.85%) or a DBA (PowerShares DB Agriculture, Expense Ratio 1.01%) for example which have 2.69% and 10.05% portfolio exposure respectively.

Cocoa futures have generally posted strong returns lately, rallying to new highs as recently as mid-October before falling back somewhat (NIB trading near its 50 day MA at the moment). Year to date NIB has attracted more than $10 million in net inflows when considering its asset base is substantial for the fund, while CHOC has net inflows of $1 million.

iPath DJ-UBS Cocoa TR Sub-Index ETN

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NIB

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