Natural Gas ETF: Will Backwardization Give UNG a Boost?
Michael Johnston submits:In 2009, billions of investor dollars flooded into the United States Natural Gas Fund (UNG) in an attempt to capitalize on an anticipated jump in price as the clean-burning fuel becomes the energy source of the future. Spot gas prices finished the year little changed — down less than 1% — but UNG lost more than half its value, as the complexities of a futures-based strategy ate into returns. Despite seeing more than $5.6 billion in cash inflows, UNG finished 2009 with $4.6 billion in assets. Some investors mistakenly believe that UNG is designed to track the spot price of natural gas, an investment objective that would require the fund’s managers to buy and physically store natural gas. But such a strategy is impractical and would be prohibitively expensive to implement. Rather, UNG invests in near month futures contracts on natural gas, “rolling” its holdings as they approach expiration each month to avoid taking physical delivery.Complete Story »