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Cocoa ETFs Getting Sweetened: Time to Buy?

Cocoa prices are on the rise lately thanks to “signs of tighter supplies in Ivory Coast, the world’s top grower.” As per Bloomberg, July futures went up about 6.8% on May 30, “the most ever for the contract.”

News that 950,000 tons of Ivory Coast's still unharvested cocoa crop – almost the volume of Ivory Coast's total cocoa crops last year — had already been sold to buyers, actually caused the latest price rally.

Cocoa prices were mostly downbeat in the last one year on supply glut. This led to compelling valuation for cocoa-related investing items (read: Why Cocoa ETFs are Hitting 52-week Low?).

However, adverse weather conditions in major growing regions hindered faster output lately, which lent a helping hand to this soft commodity.

Cocoa futures in London and New York jumped on May 30, registering their “largest one-day gains since 2012”, as speculation that Ivory Coast has wholesaled a large portion of their 2017-18 crop triggered buying. There is also news of political turmoil in Ivory Coast, which pushed up cocoa prices.  

Money managers that have so far bet against the commodity, are now turning bullish, as per the source. Prices are turning around after touching the lowest in about 10 years in April. There is also speculation that plentiful rainfall triggered fears of flooding, which may ravage the harvest.

Investors can play this optimism in the cocoa market with exchange-traded products. Below we highlight two pure-play cocoa ETNs in detail:

iPath Pure Beta Cocoa ETN (CHOC)

This note looks to track the performance of the Barclays Cocoa Pure Beta Total Return Index. This one can roll into one of a number of futures contracts with varying expiration dates, as selected using the Barclays Pure Beta Series 2 Methodology.

This approach might result in less contango. This can be an important factor, as month-to-month shifts in contracts can eat away returns in an unfavorable market situation. The fund is a bit unpopular in the space as evident by its AUM of $5.0 million. The product charges 75 bps in fees. The ETN has gained about 12% in the last one month (as of May 31, 2017).

iPath Dow Jones-UBS Cocoa Subindex Total Return ETN (NIB)

This ETN seeks to match the performance of the Dow Jones-UBS Cocoa Subindex Total Return. The index delivers returns through an unleveraged investment in the futures contracts on cocoa and currently consists of one futures contract. The product normally utilizes front month contracts in order to achieve exposur.

The fund is also unpopular and has attracted just $56.6 million in assets. The product charges 75 bps in fees per year and trades in a small volume of nearly 140,500 shares on average daily basis. This increases the trading cost in the form of a wide bid/ask spread.

The ETN has added about 14% in the last one month.

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IPATH-PB COCOA (CHOC): ETF Research Reports
IPATH-BB COCO (NIB): ETF Research Reports
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