The popularity in alternative sources of energy has grown tremendously in recent years, as the world tries to ween itself off its dependence on oil. One of the most innovative products are biofuels, which include a number of fuels that are created in some manner from renewable energy. Commodities such as sugar, starch, corn, and vegetable oil are common components of many of these products. Although biofuels do not account for a significant portion of the world’s energy demand, the market is still relatively young and it continues to develop at a rapid pace [for more commodity news and analysis subscribe to our free newsletter].
As technological advances continue to push biofuels into the forefront, investors are now looking for ways to gain exposure to this niche market. But because biofuels are not commodities in a traditional sense, their integration into global financial markets has been relatively slow. Enter the ELEMENTS Biofuels ETF (FUE), a product that allows investors to gain indirect exposure to this commodity through futures trading.
FUE made its debut in mid-2008 and to this day it remains as the only fund to offer targeted exposure to this intriguing corner of the alternative energy market. Since there are no futures contracts on “biofuels”, the fund focuses on contracts on physical commodities that are either biofuels themselves or feedstock commonly used in the production of biofuels. The resulting portfolio features exposure to soybeans, corn, soybean oil, and sugar, which are some of the most liquid contracts in the agricultural commodity market [see also Why Alternative Energy Will Never Become Widespread (In Our Lifetime)].
Despite biofuels’ recent popularity, FUE has not been able to gain significant traction among investors. In terms of total assets, FUE falls on the small side of the size scale in comparison to other hyper-targeted commodity ETPs; the fund has only accumulated $2.8 million in total assets since its inception in 2008. Additionally, FUE has a relatively low trading volume of just 2,300 shares a day on average. It is also important to note that FUE is an exchange-traded note, meaning its holders will be exposed to the potential credit risk of the issuing institution.
Below are the quick stats (as of 10/18/2012) to help investors get a better feel for this unique ETF.
- Issuer: ELEMENTS
- Expense Ratio: 0.75%
- Inception: 02/05/2008
- Total Assets: $2.8 M
- Average Daily Volume: 2,300
Who Should Use FUE
FUE is by no means intended for all investors even though it is publicly available to anyone with a trading account. Instead, FUE will be more suitable for niche investors who have a firm understanding of the biofuels market. Investing in this alternative energy will require traders to be aware of any developing trends in both the energy and agricultural markets, since the production and consumption of biofuels heavily depend on these two sectors [see also ETFs To Hedge Rising Prices at the Pump].
And like all other futures-based products, investors will need to frequently monitor their positions since volatile price movements can quickly turn a position sour in as little as an hour. For those of you who meet the aforementioned requirements, FUE will be a great way to take advantage of the market, allowing you to play the commodity in a way that would be relatively expensive and difficult to implement on your own.
Disclosure: No positions at time of writing.