Investors Head For The Exits As The Natural ETF May Be In For A Wave Of Share Redemptions

exits“The $4.2-billion U.S. Natural Gas Fund (UNG) may be in for a wave of share redemptions that would force the largest exchange-traded fund in the fuel to sell thousands of futures contracts as cold weather in the United States fades. Last week, the fund redeemed 20 million, or 4.4 percent of shares outstanding, its first redemptions since June after growing 15 times from the start of 2009. Redemptions force the ETF to sell natural gas assets that back the shares. The fund’s liquidation of gas assets may put pressure on fuel prices. Tuesday and Wednesday the fund sold 4,300 futures for March delivery on the New York Mercantile Exchange and 1,600 natural gas swaps on the Intercontinental Exchange Inc., according to the fund’s Web site,” Asjylyn Loder Reports From News Time.

“People are starting to realize there is no easy money to be made here trying to play a cold New England winter,” said Dave Nadig, director of research for “I wouldn’t be surprised to see significant redemptions in the fund as people realize that this was a poor play, and we start coming out of the winter.”

“If your single, consolidated buyer exits the room, it’s a problem, especially for a market that’s already jittery about the end of the heating season,” said Teri Viswanath, director of commodities research at Credit Suisse Securities USA in Houston.

Loder continues to say, “While natural gas futures surged during the past four months as cold weather boosted heating demand, the ETF, known by its ticker (UNG), has lagged behind, Nadig said. About 52 percent of U.S. households rely on natural gas for heat. Natural gas reached a seven-year intraday low Sept. 4 of $2.409 per million British thermal units. Natural gas has more than doubled since then while the ETF is little changed.”

“For the (UNG), the bloom is way off the rose,” said Tom Orr, director of research at Weeden & Co., a brokerage in Greenwich. Natural gas is under pressure from high stockpiles and an unexpected increase in U.S. jobless claims, Orr said. The gas fund’s sale of contracts is adding “incremental pressure” on prices, he said.

“Stockpiles fell 115 billion cubic feet in the week that ended Jan. 29 to 2.406 trillion cubic feet, the Energy Department said Friday. Analysts forecast a decline of 121 billion. The five-year average withdrawal for the week is 178 billion,” Loder Reports.

“There are a whole lot of people realizing that UNG is a bad bet and they are just getting out,” Nadig said.

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