Over the years, sugar has grown to be one of the most widely used soft commodities in the world with its number of applications going well beyond simple food production. As with all agricultural investments, sugar is known to exhibit significant volatility, making the commodity a lucrative investment tool for those looking for a sweet return. Additionally, sugar has been shown to maintain a fairly low correlation to other asset classes, such as stocks, giving investors yet another option to add meaningful diversification to their portfolios [for more sugar news and analysis subscribe to our free newsletter].
Thanks to the development of the exchange-traded fund industry, investors now have several ways to gain access to this sweet commodity. Below, we outline the three most popular sugar ETFs and which one will fit your investment objectives.
iPath DJ-UBS Sugar Subindex Total Return Sm Index ETN (NYSEARCA:SGG)
Quick Stats (as of 9/13/2012)
Total Assets: $27.7 million
Average Daily Volume: 18,961
Expense Ratio: 0.75%
Barclays iPath introduced the first-ever sugar exchange-traded product to the markets in 2008. Since inception, SGG has grown in popularity, giving investors and traders alike access to the sweet commodity. The fund provides exposure to sugar prices by tracking an index that consists of only one futures contract on sugar. SGG’s simplicity and effectiveness have allowed the fund to amass just over $28 million in total assets under management, and to maintain a relatively healthy trading volume of about 12,000 shares a day. It is important to note however, that SGG is structured as an exchange-traded note, meaning investors will be exposed to the potential credit risk of the issuing institution [see also Five Little Known Factors Driving The Price Of Sugar].
SGG is Right for You if: You are an active trader seeking to either speculate on sugar’s movements or quickly execute positions in the commodity.
iPath Pure Beta Sugar ETN (NYSEARCA:SGAR)
Quick Stats (as of 9/13/2012)
Total Assets: $2.2 million
Average Daily Volume: 3,515
Expense Ratio: 0.75%
SGAR is another popular sugar exchange-traded product available on the market, offering investors exposure to sugar prices through the futures market, but with a slight twist. Unlike SGG which rolls its holdings on a monthly basis, SGAR does not roll exposure on a predetermined schedule; the roll timing is based on a proprietary “Pure Beta” methodology designed to reduce the impact of contango or backwardation on returns. This is perhaps the fund’s most alluring feature, considering how both of these futures trading nuances can make a devastating impact on bottom line returns. Like SGG however, SGAR is also structured as an exchange-traded note, meaning that investors will be exposed to the potential credit risk of the issuing institution.
SGAR is Right for You if: You are an investor looking to achieve sugar futures exposure, but want a methodology that helps avoid the adverse affects of contango.
Teucrium Sugar Fund (NYSEARCA:CANE)
Quick Stats (as of 9/13/2012)
Total Assets: $1.8 million
Average Daily Volume: 1,835
Expense Ratio: 1.00%
Like SGAR, CANE is also designed to combat some of the disadvantages that are inherent in futures trading. Rather than rolling exposure to front month futures contracts upon expiration, CANE’s holdings are spread across multiple maturities, allowing the fund to help minimize the adverse impact of contango on bottom line returns. The fund has accumulated just over $1.5 million in total assets and maintains a trading volume of 1,835 a day. It is important to note however, that CANE is structured as a publicly traded partnership, meaning that investors will be required to fill out a K-1 form come tax time [see also 50 Ways To Invest In Agriculture].
CANE is Right for You if: You are an investor looking to achieve exposure to sugar prices through futures trading, but want to invest in contracts across multiple maturities.
This article was originally written by Daniela Pylypczak, and posted on Commodity HQ.