Which Coffee ETF Is Right For You? JO vs. CAFE

Although most might think of coffee as their breakfast-time drink of choice (or in most cases, necessity), its popularity as a lucrative financial instrument has surged in recent years. This soft commodity is well known around the world as a staple of many diets. While coffee’s uses are quite limited outside of the consumption scope, the massive demand for this product has allowed it to become one of the most active futures contracts on the market [for more coffee news and analysis subscribe to our free newsletter].

Since the supply of coffee is largely dominated by emerging market countries, like Brazil and Vietnam, its inherent volatility and potentially lucrative returns make trading the commodity highly appealing to investors and traders alike.  And thanks to the development of the exchange-traded fund industry, investors now have several ways to gain access to this popular soft commodity. Below, we outline the two most popular coffee ETFs and which one will fit your investment objectives.

Dow Jones-UBS Coffee ETN (JO)

Quick Stats (10/1/2012)

In 2008, Barclays iPath introduced the first ever coffee ETN to the markets. Since then, JO has been gaining popularity in the investment world, catching attention from investors and traders alike. The cleverly-named fund tracks an index that consists of only one futures contract on coffee. JO’s simplicity and effectiveness have allowed the fund to amass nearly $40 million in total assets under management, and to maintain a relatively healthy trading volume of about 63,000 shares a day on average. It is important to note however, that JO is structured as an exchange-traded note, meaning investors will be exposed to the potential credit risk of the issuing  institution [see also Jim Rogers: The Agriculture Industry is Doomed].

JO is Right for You if: You are an active trader seeking to either speculate on coffee’s movements or quickly execute positions in the commodity. 

Pure Beta Coffee ETN (CAFE)

Quick Stats (10/1/2012)

CAFE is the only other exchange-traded product available on the market, offering investors exposure to coffee prices through the futures market, but with a slight twist. Unlike JO which rolls its holdings on a monthly basis, CAFE does not roll exposure on a predetermined schedule; the roll timing is based on a proprietary “Pure Beta” methodology designed to reduce the impact of contango or backwardation on returns. This is perhaps the fund’s most alluring feature, considering how both of these futures trading nuances can make a devastating impact on bottom line returns. It should be noted that if CAFE is unable to scrape up more assets in the coming months, it would more than likely be forced to close its doors.

CAFE is Right for You if: You are an investor looking to achieve coffee futures exposure, but want a methodology that helps avoid the adverse affects of contango. 

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Disclosure: No positions at time of writing.

About Daniela Pylypczak

Daniela Pylypczak-Wasylyszyn is a regular contributor to CommodityHQ.com, where she primarily focuses on commodity producers equities. She is also an analyst for ETFdb.com, where she contributes articles and analysis each week. Since joining the team in 2011, Daniela has quickly grown to be one of the most widely-followed authors in the industry. Her articles are syndicated in a number of online publications, including Financial Advisor Magazine, Fidelity.com, and Yahoo! Finance. Daniela is also a contributor for TraderHQ.com and Dividend.com. Daniela graduated from DePaul University with a bachelor’s degree in finance and economics.
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