Top 10 Best Commodity ETF Plays YTD

February 20, 2014

At No. 6, No. 5 and No. 4 there are natural gas funds, with the United States 12 Month Natural Gas Fund (UNL | A-100) at No. 6. UNL is up 14.7 percent year-to-date.

UNL holds the 12 nearest-month NYMEX natural gas futures contracts in equal weights. The equal weighting methodology is designed to mitigate the impact of contango on returns, although the natural gas market is currently in backwardation. The nearby futures contract is the most expensive on the curve.

In fact, investors are currently netting 37.01 percent annualized to roll front-month natural gas contracts, according to our latest contango report. Natural gas prices have now rallied more than 46 percent since the beginning of the year.

UNL has nearly $26 million in assets, and has an all-in cost of about $114 per $10,000 invested a year.

The small, $2-million-in-assets Teucrium Natural Gas ETF (NAGS | A) comes in at No. 5 with gains of 17.3 percent year-to-date.

The fund invests in four futures contracts in a strategy that’s also designed to mitigate contango, but it costs 1.48 percent in expense ratio, and it trades on average with a spread of nearly 1 percent, making this fund expensive to hold.

At No. 4, the United States Natural Gas Fund (UNG | A-78) is up 30.55 percent year-to-date.

UNG invests only in the near-month natural gas futures contract. The rolling position benefits from backwardation in the market, which is currently at historically steep levels.

UNG is also massively liquid, trading more than $360 million on average a day in the past 60 days, putting its trading spread at an average of 5 basis points. Its all-in cost is currently $105 per $10,000 invested.

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