Yesterday I mentioned that the Teucrium Corn Fund (CORN) was now trading but I was not exactly right about the combo of futures that it will use to try to mitigate contango issues.
IndexUniverse sets it straight:
[CORN] will track a daily weighted average of closing settlement prices for the second-to-expire CBOT futures contract, weighted at 35%; the third-to-expire contract, weighted at 30%; and the final 35% based on the contract expiring in the December following the expiration of the third-to-expire contract.
I would also note that the fund will charge a 1.71% fee, which does not sound cheap. I looked at the futures chain yesterday and there is a fair bit of contango looking ahead on the curve. Obviously there is no way to know whether the contango busting strategy will work, although I'm sure they have reason to think it will help.
The chart above (click to enlarge) compares the corn futures contract to the S&P 500. On the chart, and if you long at a longer time period on BigCharts, you see a fair bit of negative correlation. The correlation is not always negative but it is negative quite frequently, though not in the second half of 2008.
I don't know enough about corn to know why it might have a negative correlation so often other than just simply saying it is a commodity but it is interesting. And now that stock market investors have easier access than they've had before maybe some of the effect will go away. I've never thought about corn as a portfolio diversifier and I seriously doubt I will be buying the fund but it is something to learn more about. Maybe corn will be the holy grail of diversification and if it is then maybe buying some after the fund proves itself will make sense.
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