Teucrium Trading last week (2/1/11) launched the Teucrium Natural Gas Fund (NAGS), providing investors with unleveraged exposure to natural gas futures contracts. The fund’s stated objective is to reflect the daily percentage change in the next March, April, October, and November Henry Hub Natural Gas Futures Contracts, weighted 25% equally in each contract month, less expenses.
Teucrium believes this methodology is “designed to reduce the effects of contango and backwardation”. Why the four contracts are concentrated in spring and fall and not equally spread across 12 months is not clear. Current holdings are the April 2011, October 2011, November 2011, and March 2012 contracts. The NAGS website also provides details on the fund’s planned roll dates.
Contango has been a persistent problem in the natural gas markets. United States Commodity Funds introduced the United States 12 Month Natural Gas Fund (UNL) more than 14 months ago as a way to mitigate the effects of contango. Our article, Will UNL Work Better Than UNG?, described some of the problems facing natural gas funds.
NAGS will compete against three existing natural gas futures ETPs:
United States Natural Gas Fund (UNG) has 100% exposure to nearest month contract and rolls 100% of its portfolio every month with a 0.60% management fee.
United States 12 Month Natural Gas Fund (UNL) has equal exposure to nearest month contract and the next eleven months. It rolls about 8.3% of its portfolio every month with a 0.75% management fee.
iPath DJ-UBS Natural Gas Total Return ETN (GAZ) is an exchange-traded note linked to the performance of an index that has 100% exposure to nearest month contract and rolls 100% of its portfolio every month. GAZ has a 0.75% annual fee.
NAGS 1.00% management fee is the highest of the four products and the “4 month” structure would appear to place it between the “1 month” UNG and the “12 month” UNL when it comes to combating contango. Unless I am missing something, UNL seems like the best contango fighter of the group.
Additional information is located at the NAGS home page, fact sheet (pdf), and prospectus (pdf). The press release also mentions that the Teucrium WTI Crude Oil Fund (CRUD) is expected to be trading by the end of the month.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.