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Beat the Correction Blues With TAGS

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A steady stream of gains to new S&P 500 highs has turned into choppy waters of volatility to start the second quarter. It’s a reminder that investors should consider getting agriculture exposure as a means of diversification to counter volatile markets.

Since mid-October of 2023, the CBOE Volatility Index has been on the decline. Thus far in 2024, however, the index is up almost 40%. The relative tranquility of the stock market has been disrupted by the higher-for-longer inflation narrative, keeping interest rate cuts on the back burner.

This is where uncorrelated assets like agriculture commodities can be beneficial. A look at past market S&P 500 corrections in relation to the performance of the Teucrium Agricultural Fund Benchmark Index justifies the need for agriculture commodities. In the graphic below, through six time periods where the S&P 500 incurred heavy corrections, the index rose or saw smaller losses in comparison versus the S&P.

If volatility persists or worse, if a deep market correction occurs, then exposure to ag commodities can be had using the (TAGS B). Rather than have separate positions in various commodities, TAGS can capture it all and provide broad-based exposure.

Given its low 0.13% expense ratio, the fund offers a compelling option. The unique fund of funds structure inherent in TAGS is an ideal way for ingress into agricultural investing.

The 60/40 stock-bond portfolio mix has been the default asset allocation split for many years. However, uncorrelated assets such as ag commodities decrease volatility and bring more balance to a portfolio. That was evident in 2022 when both assets were heading down, but agricultural commodities were trending higher.

Because ag commodities offer uncorrelated exposure to the broad market, TAGS is the perfect complement to a traditional 60/40 stock/bond portfolio, all in the convenience of one dynamic fund. For even further diversification in the ag mix, a the fund of funds structure of TAGS gives investors exposure to corn, wheat, soybeans, and sugar.

Traders or long-term investors can focus on the fund for broad-based exposure or the individual funds for a more focused, concentrated approach in specific commodities. For the long-term investor willing to ride out the current downtrend, patience will continue to be key. If broad commodities continue to trend lower, investors can subsequently buy the dips and add to their ag commodities portfolio.

Short-term traders can also use TAGS to play the volatility of ag commodities prices, particularly when prices push higher. Should the current trend reverse, traders can get ahead of the move with TAGS.

The funds featured in TAGS:

For more news, information, and analysis, visit the Commodities Channel.

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