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

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Cocoa is not only a delicious foodstuff, but it is also one of the most traded products around Nigeria and overseas. Furthermore, like other commodities, it can be traded on the stock exchange: in fact, cocoa is the third most traded raw material. One way to invest in cocoa is through Exchange Traded Funds, better known as ETFs. Let’s now find out in detail what cocoa ETFs are, what are the best investment solutions, and what advantages they offer to investors.

Cocoa ETFs: What Are They?

 

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

An aspect that is important to note 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 raw materials that do not require an underground drilling process, as envisaged for example natural gas or oil, considered hard commodities.

What Influences the Price of Cocoa

Before understanding what are the best solutions for investing in cocoa,  it is important to understand how its price is determined and what are factors can have a significant impact on the price.

Most traders focus exclusively on the study of technical analysis, observing the charts to understand the evolution of the asset price. This type of analysis can be misleading if it is not accompanied by fundamental analysis, capable of also considering some factors external to the market, such as climate changes, transport costs, currency prices (mainly Pounds and Dollars), world production, and political instability typical of producing countries.

Best Cocoa ETFs: Quotation and Technical Analysis

 

As regards the offer of financial instruments linked to cocoa, it should be specified that the list of ETFs and ETNs is not particularly long, since traders tend to prefer to trade the related futures directly.

One of the most interesting is IPath Pure Beta Cocoa ETN (CHOC), an Exchange Traded Note issued in the US and listed on the stock exchange, even in Nigeria. The feature of this instrument is to provide investors with either a cash payment at the specified maturity or a performance-related redemption 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 raw material, at the moment investing in such a tool can prove to be very complicated. Commodities are still a niche product and ETFs exposing themselves to cocoa are not plentiful, to put it mildly.

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

To trade cocoa ETFs, one of the preferred solutions for traders is to turn to regulated brokers, such as FXTM. The FXTM platform is one of the best known, thanks to its extreme practicality and the presence of very advantageous commissions. Coupled with the inclusion of cocoa ETFs on FXTM, it is possible to trade on other commodity futures.

Advantages and Risks of Investing: Is it Worth It?

At the moment, analysts’ forecasts regarding cocoa seem to point to a possible increase in demand in the coming years.

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

The demand for chocolate lately is increasingly conditioned by research and studies that show that it is a very healthy product for both the heart and the psyche, especially dark chocolate. Furthermore, cocoa can be used in many ways: think, for example, of cocoa liqueur, powder in drinks, its use as butter in cosmetics, or, again, in food for animals.

It is not easy to predict how cocoa consumption will evolve in the coming decades internationally. The main consumer countries (USA, United Kingdom, Germany, Canada, Italy, Spain, Holland, 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 put forward, investing in this raw material today could be a risky choice, especially if made to give value to one’s portfolio, given that the price of cocoa is destined to fluctuate strongly over time. To invest in this commodity, you can opt for trading on CFDs in liquid and leveraged instruments. In this case, it is advisable not to underestimate the choice of the broker and to turn exclusively to reliable platforms that enjoy the main international licenses.

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