Natural Gas ETF-UNG Is Broken: Does Not Follow NAV

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August 13, 2009 11:18am ETF BASIC NEWS NYSE:UNG

natural-gas-etf“The refusal of the U.S. Natural Gas ETF (UNG) to issue additional shares is not enough to protect investors. The latest decision from UNG managers is a move to protect the best interests of the fund. Investors should avoid UNG for the foreseeable future until the dust settles


. UNG’s rejection of the additional approved units is a significant, if unsurprising, move in an ongoing saga. In early July, fund managers “ran out” of the pre-approved share allotment, forcing a halt in share creation. This jolt disconnected UNG’s market price from its net asset value (NAV), forcing the fund to break one of the most important promises made by the ETF industry,”  Don Dion Reports From The Street.

SEE OUR STORY ON: ETF-UNG Is Still Waiting For The SEC To Approve New Shares

“Managers of the fund filed with the SEC for an additional 1 billion shares while the fund itself spent much of July trading at a marked premium. During this period, the Commodities Futures Trading Commission (CFTC) began to examine the role that indexing strategies like UNG had in the futures markets for commodities like natural gas,” Dion Reports.

“Sensing that regulation was imminent, managers of UNG began to decrease their position in natural gas contracts and reallocated funds to the purchase of swaps. These swaps trade over the counter and would not be subject to the same regulations as futures trading on the New York Mercantile Exchange,” Dion Reports.

Here is a chart on what the Natural Gas ETF (UNG) has done in the past year:

 Chart for United States Natural Gas (UNG)

Full Story: HERE

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