The natural gas exchange traded fund (ETF) is so popular that it has sold off all shares available, and it’s still waiting for the go-ahead for more. But this has not changed the fact that natural gas has been steadily decreasing in price in the meantime.
United States Natural Gas (UNG) is suffering from high gas inventories and seasonal prices, reports Asjylyn Loder for Bloomberg. This did not deter investors as the number of outstanding shares increased 11-fold. The popularity of the fund picked up as Investors poured $16.9 billion into commodity-based ETFs this year through May 31.
UNG tries to reflect price changes in futures contracts on natural gas delivered to Henry Hub in Erath, Louisiana. The fund sells and replaces contracts near expiration with the following month’s futures, also known as rolling. Rolling starts to eat away at performance when current contracts are worth less than the next month’s, also known as contango. Since the fund launched in April 2007, the natural gas market has been in contango 94% of the time.
The $4.6 billion fund made 300 million new shares available May 6, which grew to 347.4 million shares, and ran out on July 7. The Securities and Exchange Commission (SEC) is deciding whether to approve 1 billion extra shares.
John Hyland, portfolio manager and chief investment officer at United States Commodity Funds, says there’s no way to predict when a ruling will come – it could be a few days or a few weeks. The provider also doesn’t believe that there’s any effort on the part of the regulators to deliberately delay signing off on the prospectus, contrary to some reports.