Cocoa ETFs: Which are the Best, Technical Analysis, How to Invest

Find out about Cocoa ETFs. Cocoa is not only a delicious foodstuff, but it is also one of the most traded products at international level. Moreover, like other commodities, it can be traded on the Stock Exchange: in fact cocoa is the third most traded commodity. One of the ways to invest in cocoa is through Exchange Traded Funds, better known as ETFs. Let’s discover now in detail what are cocoa ETFs, what are the best investment solutions and what advantages they offer to investors.

Cocoa ETFs: What they are

Cocoa ETFs are nothing more than passively managed funds whose benchmark is represented by cocoa futures. The term futures refers to standardized derivative contracts that establish the commitment of the contracting party to purchase a specific underlying at a deferred date and at an agreed price.

An aspect that is important to point out concerns the properties of cocoa: it is an agricultural product that can be found on the surface, as well as corn, cereals and sugar. For this reason it belongs to the category of soft commodities, i.e. those commodities that do not require a process of drilling in the subsoil, as is the case for natural gas or oil, which are considered hard commodities.

What Influences Cocoa Price

Before understanding what are the best ways to invest in cocoa, it is important to understand how its price is determined and what are the factors that can have a relevant impact on the price.

Most traders focus exclusively on the study of technical analysis, observing charts to understand the evolution of the asset price. This type of analysis can be misleading if it is not accompanied by fundamental analysis, which is able to consider also some factors external to the market, such as climate change, transportation costs, currency quotation (mainly Sterling and Dollar), world production and political instability typical of producing countries.

The Best Cocoa ETFs: Quotation and Technical Analysis

As far as the offer of financial instruments related to cocoa is concerned, it is necessary to specify that the list of ETFs and ETNs is not particularly long, as traders tend to prefer to negotiate directly the related futures

One of the most interesting is IPath Pure Beta Cocoa ETN (CHOC), an Exchange Traded Note issued in the USA and listed on the stock exchange. The feature of this instrument is to provide investors with a cash payment at a pre-determined maturity or a redemption linked to the performance of the underlying, the Barclays Capital Cocoa Pure Beta TR Index.

Another interesting solution to consider is iPathDowJones-UBSCocoaSubindexTotalReturnETN (NIB), a passively managed fund whose benchmark is the Jones-UBS Cocoa Subindex Total ReturnService Mark index.

How to Invest

Although cocoa is a well-known and widely used commodity, investing in such an instrument can be very complicated at the moment. Commodities are still a niche product and ETFs with exposure to cocoa do not abound, to put it mildly. 

One of the alternatives to invest in cocoa is through the so-called contracts for difference, CFDs. This is a derivative instrument that allows you to operate both betting on the rise of the underlying, and on the fall, implementing in the latter case the short selling.

To trade ETFs on cocoa one of the solutions preferred by traders is to turn to regulated brokers, such as eToro. The eToro platform is one of the best known, thanks to its extreme practicality and the presence of very advantageous commissions. Although there are no ETFs on cocoa on eToro, it is possible to trade the futures of the commodity. In addition, there are over 250 ETFs, adding to a wide range of financial assets.

Advantages and Risks of Investment: Is it worthwhile?

At the moment analysts’ forecasts about cocoa seem to show a possible increase in demand in the next years.

As mentioned before, it is important to evaluate well the country of origin, as usually the main producers of cocoa are countries with high political instability (60% of cocoa producers come from West Africa: Ivory Coast, Nigeria, Ghana, etc.).

Recently the demand for chocolate is more and more conditioned by researches and studies which show it is a very healthy product both for the heart and for the psyche, in particular dark chocolate. Moreover, cocoa can be used in many ways: let’s think about cocoa liquor, powder in drinks, its use as butter in cosmetics or, again, in foods for animals.

It is not easy to predict how cocoa consumption will evolve in the next decades at international level. The main consumer countries (USA, UK, Germany, Canada, Italy, Spain, Netherlands, France and Belgium) will tend to maintain current levels, while it is much more interesting to understand how cocoa consumption will evolve in developing countries. If it manages to explode in these areas as well, naturally its growth will be much more accentuated.

For all the reasons that have been stated, investing in this raw material today could be a risky choice, especially if done in order to give value to one’s portfolio, considering the fact that the price of cocoa is destined to have strong oscillations in time. To invest in this commodity you can opt for CFD trading in liquid and leveraged instruments. In this case, it is advisable not to underestimate the choice of the broker and turn exclusively to reliable platforms that enjoy the main international licenses.

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