Natural Gas ETF-UNG Continues To Trade At A Premium

natural-gas-etfThe Natural Gas ETF has failed to receive regulatory approval to issue new shares which has prevented the exchange-traded fund from buying new contracts.  While natural gas prices have plummeted, the ETF has gone the opposite way as demand for the ETF has increased.  “On Wednesday, at the New York Mercantile Exchange, natural-gas prices dropped 4.3% to settle at $3.283 per million British thermal units. As of July 3, natural-gas inventories were 27.4% higher than a year ago, as demand was weighed down by the declining industrial activities and weaker air-conditioning use in the Northeast,”  WSJ Reports.

“Regulators have increased scrutiny over exchange-traded funds that are invested in commodities, leaving UNG and other funds hamstrung at a time when investors are craving for hard assets. The $4.3 billion UNG fund was forced to close its doors to new investors a week ago as it maxed out its shares and failed to win regulatory approval in time to issue additional ones,”  WSJ Reports.

The hiatus has led the fund to disconnect from its underlying assets. On Wednesday, the fund fell 2.3%, a much smaller drop than natural-gas futures, leaving the fund to trade at a premium to its assets. “That’s a big disparity,” Gary Gordon, president of Pacific Park Financial Inc., a financial adviser, “I expect it will get fixed soon.” 

“A spokesman at the Securities and Exchange Commission said that commodity ETFs are a focus for the agency and deserve more expertise due to their complex structure. The Commodity Futures Trading Commission, which has no role in approving the new shares, is planning to hold public hearings later this month to decide whether to apply position limits across all participants, including ETFs.Regulators at the SEC are waiting for more clarity from the CFTC’s hearings before giving the green light, people familiar with the situation say,”  WSJ Reports.

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