Cocoa ETFs In Focus As Easter Approaches

Having recently come off of a successful Easter Egg hunt for my two children at the park across the street from our home ahead of Easter weekend, eating some of the spoils, notably Reese’s Peanut Butter eggs, has me thinking about, what else, but chocolate and more chocolate.

We have profiled the closest things to “Chocolate ETPs” in the past in this piece, and it makes sense to revisit these “Cocoa” focused products once again ahead of the Easter holiday. NIB (iPath Bloomberg Cocoa Subindex Total Return ETN, Expense Ratio 0.70% $52.7 million in AUM) launched back in June of 2008 and is the largest of the two alternatives in this segment.

Futures based, the investment methodology is pretty simple and as detailed in fund literature, which states:

“The Index reflects the returns that are potentially available through an unleveraged investment in the futures contracts on cocoa. The Index currently consists of one futures contract on the commodity of cocoa which is included in the Bloomberg Commodity Index Total Return.”

The other ETP in this segment, also an ETN from issuer iPath, is significantly smaller with only $4.5 million in assets under management presently, and this listing is CHOC (iPath Pure Beta Cocoa ETN, Expense Ratio 0.75%). Unlike NIB, which simply employs a single front month contract methodology, CHOC’s process involves, as according to fund literature:

“The Index may roll into one of a number of futures contracts with varying expiration dates, as selected using the Barclays Pure Beta Series 2 Methodology.”

Reading in between the lines, the involvement of more than one futures contract here is a more advanced way of investing in a commodity futures oriented product of course, and likely hinges on the desire to mitigate if not eliminate contango where it may be present in the futures markets.

CHOC debuted several years after NIB, in April of 2011, and trades a scant 3,600 shares on an average daily basis, while NIB trades a healthy 162,000 shares daily as measured on a one-month trailing basis.

In terms of performance, both ETN’s have been beaten up not only throughout 2016 but in early 2017 as well, with Cocoa prices hovering near four-year lows once again today on several factors that include reduced demand as well as an increase in marketplace supply due to increased production from those in the industry.

Prices could be affected sharply and suddenly however, and potentially reverse if there are any bouts of unfavorable growing weather or a shift in the supply/demand relationship that we mentioned above.

NIB-2017-04-13

The iPath Bloomberg Cocoa Subindex Total Return SM Index ETN (NYSE:NIB) was trading at $23.33 per share on Thursday afternoon, down $0.49 (-2.06%). Year-to-date, NIB has declined -13.27%, versus a 4.63% rise in the benchmark S&P 500 index during the same period.

NIB currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #88 of 126 ETFs in the Commodity ETFs category.


Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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