Investors have long been intrigued with cocoa as this sweet commodity has surely made a name for itself in the financial universe. Although its uses are limited, the market demand for this resource is massive.
Cocoa is primarily used in the production of chocolate, but can also be used to make cocoa butter, which is used in a number of pharmaceutical drugs. Additionally, cocoa makes an appearance in cosmetics, lotions, and even soap.
By far, the largest producer of the soft commodity is the Ivory Coast, followed by big-name producers in Ghana, Nigeria, and Cameroon. As a trading instrument, cocoa is a rather appealing short-term play since supply shocks can often send prices skyward. Thanks to the development of the exchange-traded fund industry, investors now have several ways to gain access to this popular sweet commodity. Below, we outline the two most popular cocoa ETFs and how they will fit with your investment objectives [for more cocoa news and analysis subscribe to our free newsletter].
Dow Jones-UBS Cocoa Total Return Sub-Index ETN (NIB)
Quick Stats (5/20/2015)
- Total Assets: $18.6 million
- Three Month Average Volume: 10,400
- Expense Ratio: 0.75%
- In Depth: NIB Analyst Report and ETFdb Realtime Rating
Barclays iPath NIB is by far the most popular cocoa ETN available on the market, offering investors exposure to the sweet commodity by investing in a single futures contract on cocoa. Since its debut in 2008, NIB has grown in popularity as investors look at the fund as an effective speculative tool to make a play on the cocoa market. The cleverly named fund has accumulated almost $19 million in total assets, and its shares currently exchange hands over 10,000 times every three months on average. It is also important to note that NIB is structured as an exchange-traded note, meaning investors will be exposed to the potential credit risk of the issuing institution.
NIB is right for you if: You are an active trader seeking to either speculate on cocoa’s movements or quickly execute positions in the commodity.
Pure Beta Cocoa ETN (CHOC)
Quick Stats (5/20/2015)
- Total Assets: $6.5 million
- Three Month Average Volume: 1,300
- Expense Ratio: 0.75%
- In Depth: CHOC Analyst Report and ETFdb Realtime Rating
CHOC is the only other exchange-traded product available on the market, offering investors exposure to cocoa prices through the futures market, but with a slight twist. Unlike NIB, which rolls its holdings on a monthly basis, CHOC 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 have a devastating impact on bottom-line returns. Despite its contango-fighting feature, the fund is by no means at the same level of popularity as its competitor, NIB: CHOC has only $6.5 million in total assets compared to NIB’s $18.6 million portfolio and its three month average volume comes in at a relatively low 1,300 shares.
CHOC is right for you if: You are an investor looking to achieve cocoa futures exposure, but want a methodology that helps avoid the adverse effects of contango.
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Disclosure: No positions at time of writing.
