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By Abraham Bailin | 04-13-2011 11:59 AM

Commodities Investing Goes Mainstream

Commodities are becoming core portfolio holdings for many professional money managers and also will be seeing increased demand as the world's middle class grows, says Teucrium's Sal Gilbertie.

Abraham Bailin: Hi, I'm Abraham Bailin. I'm here with Sal Gilbertie, president and co-founder of Teucrium.

He has joined us today to speak about agricultural and energy specific commodity ETFs.

Sal, thanks for being here.

Sal Gilbertie: My pleasure.

Bailin: You guys have brought three funds to the market recently that looked to do very well, and they are slightly different than their predecessors.

But before we really get into the fund-specific discussion, might you just provide our viewers with a bit of insight into where you think the markets are now, what you think some of the underlying drivers are, and what really drove you guys to bring these various commodity-specific funds to market?

Gilbertie: Sure. Well, primarily we're a company composed of energy and agricultural commodity professionals, that's what we know. So stick to businesses you know, that's what Teucrium does.

We came to this space because of a true core belief that we have that commodities in the past five to 10 years have come into the mainstream through many of the academic studies and institutions have begun investing, and they are actually core portfolio holdings for many professional money managers, and they're just coming into the mainstream.

So we looked at the product slate that was out there, we thought we could make some improvements, obviously we have some products where there aren't any single-commodity ETFs in that commodity. We also brought out CORN, Teucrium Corn Fund was our flagship fund, and there was no corn ETF [prior to that].

We did that because we truly believe the next five to 10 years will bring commodities into everyone's portfolio. They will be in the mainstream. The rest of the world, the BRICs nations that are so in vogue, there's an emerging middle class coming, and essentially Americans have taught people how to use a lot of stuff. They use a lot of commodities, and so as this middle class outside of what we consider the industrialized world expands, those people are going to use a lot more of the world's resources, and quite frankly there's an infinite possibility for the number of humans that can populate the earth and there's a finite number of resources.

So we believe there will be stress on the global commodity picture and we want to be there to provide well-structured investment product for investors.

Bailin: So we got the demand-pull side of this story. Is there anything else in that story or really is it middle class growth?

Gilbertie: I think there's a lot in that story. It's global expansion. It's just as the economy grows, as we come out of the troubles that we've seen in the past two years, it's economic growth, it's just the expansion of humanity, it's middle class expansion, it's a number of factors.

Just consider automobiles: that China has become a number one importer of automobiles or purchaser of automobiles now in the world. They passed the United States. Automobiles use a tremendous amount of resources.

So commodities will be stressed; we're here to provide the product to investors so that they can participate as they see fit.

Bailin: Well, you had touched on it earlier. In CORN, you guys are the lone man, first ones to make it to market, and really with corn's performance recently, I think there is quite a bit of pent-up demand for that type of offering, but you guys also provide several other offerings. So for natural gas offering NAGS, and crude offering CRUD, and we have several well known exchange-traded vehicles already in place there, namely obviously UNG and USO in the natural gas and oil space, respectively.

As you had mentioned, there are a couple of downfalls to those products, and if you wouldn't mind without being too vicious, please, could you just speak about maybe the issues surrounding contango and negative roll yield and could you just touch on that for our viewers?

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