Should Investors Use Futures Directly Instead Of The Natural Gas ETF (UNG)

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Should Investors Use Futures Directly Instead Of The Natural Gas ETF (UNG)

September 11th, 2009

september11 “Short sellers bet against the U.S. Natural Gas Fund (UNG) in record numbers last month as prices for the fuel plunged to the lowest level since 2002 and the fund quit issuing new shares. Short interest for the exchange-traded fund tracking gas futures surged 135 percent to 30.9 million shares in the two- week period ended Aug. 31, according to data compiled by the New York Stock Exchange,” Jeff Kearns Reports From Bloomberg.

The fund, known by its (UNG) ticker symbol “has been trading at a premium to its underlying natural gas assets since Aug. 12, when it announced that it couldn’t issue new shares because of limits on how many natural gas contracts it can buy. Today, shares cost 9.59 percent more than the value of the fund’s gas contracts,” Kearns Reports.

“Due to the lofty premium it makes sense that investors would prefer using futures directly instead of the ETF,” said Scott Becker, an equity derivatives strategist at Jefferies Group Inc. in New York. “As the premium on the UNG expands it becomes increasingly less attractive as a vehicle for investing in natural gas.”

The investment (UNG) seeks to replicate the performance, net of expenses, of natural gas. The trust will invest in futures contracts on natural gas traded on the NYMEX that is the near month contract to expire. It is nondiversified.

Chart for United States Natural Gas (UNG)