ETF Trends
ETF Trends

Regulation as a result of speculation in energy exchange traded funds (ETFs) has forced fund providers to change the make up of the natural gas ETF portfolio. What has changed?

United States Commodity Funds (USCF) will be restructuring United States Natural Gas (NYSEArca: UNG) in anticipation of the government’s proposed position limit regulation in order to reduce speculation, report Dan Burns and Rebekah Kebede for Forbes.

The USCF will reduce the fund’s positions in listed natural gas futures and increase the fund’s holdings in over-the-counter natural gas swaps. Around 75% to 80% of UNG’s holdings are still listed as natural gas futures.

The change in the fund’s portfolio is an attempt to obviate potential CFTC regulations. UNG may still shift its portfolio even further, depending on the CFTC’s ultimate decision.

CFTC regulation came over concerns that ETFs were driving speculation and artificially boosting commodity prices. Analysts, however, point to the fact that data shows energy-based commodity ETFs were net sellers of contracts in the 6 to 12 months leading to the jump in energy prices. Furthermore, CFTC regulation could push ETFs to invest in over-the-counter vehicles, non-U.S. listed vehicles or downsize and return money to shareholders.

The USCF’s  biggest concern is that regulation could result in higher costs for investors in energy ETFs without any real added benefits.

  • United States Natural Gas (NYSEArca: UNG): down 48.3% year-to-date

For more information on natural gas, visit our natural gas category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.