The Teucrium Natural Gas Fund (NAGS Fund) began trading as an exchange-traded fund on the New York Stock Exchange (NYSE) Arca Tuesday, seeking to avoid the pitfalls that have dogged an existing natural gas commodity fund by basing daily changes in its net asset value (NAV) on a weighted average of the New York Mercantile Exchange (Nymex) Henry Hub quotes for the four shoulder months instead of just the front month.
The sponsors said the NAGS fund "was designed to reduce the effects of contango and backwardation" by weighting its holdings 25% in contracts for each of the months March, April, October and November. The contracts would be for those specified months that are nearest the front month. Right now those contracts are for April, October and November 2011 and March 2012. "As a result of the diversified futures structure the fund has also been specifically designed to reduce the cost of rolling the investment when compared to other funds that hold only a single month," the NAGS Fund announcement said.
NAGS began trading with 200,000 shares outstanding with nearly 40 million available and $5 million in net assets.
It joins the United States Natural Gas LP Fund (UNG), which also trades on NYSE Arca, and which started up in 2007 based on Henry Hub front month contracts, rolling out of that contract 10-11 days before expiry. UNG's NAV is $5.99 with $392 million units outstanding and total net assets of $2.3 billion.
UNG has been enmeshed in the continuing controversy about the influence of speculators on market volatility and the prices paid by consumers of natural gas (see Daily GPI, July 27, 2009). The fund has branched out from Nymex with holdings on IntercontinentalExchange and in the derivatives market. The ride on UNG has been bumpy, with analysts less than enthusiastic about its investment value (see Daily GPI, July 21, 2009). During contango markets, UNG must replace its existing holdings with more expensive contracts, thereby creating a negative yield, all other things being equal.
Another natural gas commodity exchange-traded fund, UNL, was launched in late 2009. The commodity pool tracks the 12-Month Nymex futures strip (see Daily GPI, Nov. 20, 2009). UNL's NAV as of Feb. 1 was $34.80. It had $31.3 million net assets and 900,000 units outstanding.
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