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Investing in Commodities, Tip 24: NAGS vs. UNG -- Different Tools for Different Objectives


One product offers great sensitivity to spot prices while the other reflects what's happening further down the curve.

Investors looking to establish exposure to commodities through exchange-traded products often have multiple products from which to choose. It would be a whole lot easier if there were products out there that were always the right choice, but that's not the case. In the universe of exchange-traded commodity products, different tools are appropriate for different objectives.

In previous articles, I highlighted the potential to get burned with rolling front-month strategies; the high costs incurred through roll yields can erode returns significantly over the long term. But in some instances, the front-month strategy is ideal. For other objectives, it makes sense to spread exposure along the maturity curve.

Natural gas is a great example. The United States Natural Gas Fund (UNG) is the best tool available for those looking to bet on a short term jump in prices; if your anticipated holding period is just a few days, this product will deliver the greatest sensitivity to spot prices and generally deliver the best returns if there is a spike.

The Teucrium Natural Gas Fund (NAGS) also holds natural gas futures–but is a very different product from UNG. The NAGS portfolio is spread across multiple maturities, some of which are relatively far down the curve. This fund was constructed with those interested in longer-term exposure to natural gas; the lower turnover and timing of rolls was put in place with the goal of minimizing the adverse impact of contango and coming closer to a replication of spot prices over the long haul.

UNG and NAGS are both fine products. But which one makes sense for your clients depends on your objectives.

Bottom Line: There is no "best ETF," only a fund that makes the most sense for you.

This article is part of the series "Tips for Investing in Commodities." See also:

Tip 1: Futures Do Not Equal Spot

Tip 2: Commodities and Dividends Can Align

Tip 3: Watch Your Tax Rates

Tip 4: China Can Make or Break You

Tip 5: Low Inventories Can Lead to Backwardation

Tip 6: Diversification Is Not a Given

Tip 7: Rolling Front Month Futures Is a Recipe for Disaster

Tip 8: More Than Just Energy and Gold

Tip 9: Watch Out for That K-1!

Tip 10: Consider Expenses Always

Tip 11: Commodity Exposure Through Stocks: Pros & Cons

Tip 12: Know What You're Getting Into

Tip 13: Consider Physical Exposure

Tip 14: Commodity ETFs: Structure Matters

Tip 15: Bigger Does Not Mean Better

Tip 16: Commodity ETFs Get a Bad Rap

Tip 17: Beware the Dollar's Impact

Tip 18: Not All Commodities Are Created Equal

Tip 19: Know Your Geography

Tip 20: Be Mindful of Your Timing

Tip 21:
Platinum and Palladium Are the Other Precious Metals

Tip 22: Consider the COT Report

Tip 23: Remember That You Also Have Options

Tip 25: Free Resources Can Make Your Life Easier

Follow us on Twitter @CommodityHQ!

Editor's note: This article by Jared Cummans was originally published on Commodity HQ.
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