Natural Gas ETN Premium: Don’t Get Stepped on by GAZ
April 2nd 2012 at 3:37pm by John Spence
The premium in a natural gas exchange traded note is rising again, putting investors in the ETN at risk to potential losses unrelated to the movement of natural gas prices.
The iPath Dow Jones-UBS Natural Gas ETN (NYSEArca: GAZ) was trading at a premium of about 92% to indicative value on Monday afternoon.
The ETN tumbled two weeks ago as its massive premium declined to 46% to indicative value at one point on March 23. [Natural Gas ETN Tumbles as Premium Unwinds]
However, the premium has been building again the past few days. GAZ is up 15.4% since March 29, even though the benchmark rose only 1%, Bloomberg News reported Monday.
Barclays, the issuer for GAZ, suspended new share issuance in 2009. The move created the potential for the ETN to trade at a premium or discount to indicative value based on demand, like a closed-end fund. [Focus Turns to Natural Gas ETN Premium After TVIX Crash]
The premium in GAZ has been rising again after touching a low on March 27 with investors looking for a recovery in natural gas prices.
“People are trying to pick the bottom in natural gas right now, not realizing that this vehicle they’re choosing to invest in might be broken,” Dave Lutz, head of ETF trading and strategy at Stifel Nicolaus, told Bloomberg. [ETFs Trading at Big Premiums and Discounts]
Regulators are looking into the recent plunge in a volatility product, VelocityShares Daily 2x VIX Short-Term ETN (NYSEArca: TVIX). A big premium in the VIX futures product emerged after issuer Credit Suisse halted the creation of new shares in February. However, the premium collapsed late last month, resulting in large losses for some investors that weren’t related to the direction of the tracking index. [SEC Reviewing TVIX]
GAZ, the natural gas ETN, was up 10.5% in afternoon trading Monday. U.S. Natural Gas Fund (NYSEArca: UNG), an exchange traded fund that follows natural gas futures, rose 2%.
GAZ has a market cap of $63.5 million and average daily trading volume of nearly 878,000 shares, according to MarketWatch.
iPath Dow Jones-UBS Natural Gas ETN
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.