This situation has led many natural gas ETFs to go down significantly, as these funds must continually buy up newer contracts at elevated prices and then resell them closer to expiration at deflated levels. Basically, with an unfavorable futures curve, these ETFs are usually ‘buying high and selling low’.
While this has been a huge problem, it hasn’t really been the case in 2013 as a number of factors have conspired to push natural gas higher. Chief among them are a long winter, less supply, and fewer prospects for more production in the near-term (see The Comprehensive Guide to Natural Gas ETFs).
These items have helped UNG to surge on the year, pushing the fund up double digits in the time period. If that wasn’t enough though, leveraged funds have also been winners in the space with (NYSEARCA:BOIL) adding 30% and (NYSEARCA:UGAZ) soaring by over 50% in the time frame.
Just be careful with these products going forward, as even if the supply situation continues in natural gas’ favor, the space could be hurt if the futures curve changes. So while natural gas ETFs may have more room to run, it is by no means a sure thing, suggesting that traders should take extra caution when looking at this ever-popular corner of the investing world.
For more information on natural gas ETFs so far in 2013, watch our short video on the subject below: