Investors flee natural gas ETFs

The pain of contango is being felt by investors in natural gas exchange-traded funds as the price of the commodity rises slowly. The United States Natural Gas Fund LP (UNG) and the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) are the two largest natural gas exchange-traded funds, and while the price of the commodity is down roughly 26% from the year’s beginning, they are both down significantly more. The way the exchange-traded funds are made to roll futures contracts on a monthly basis is what causes them to perform so much worse than the underlying commodity. The fund is compelled to purchase the following month’s contract at a higher price while the price of the commodity is increasing. Due to the commodity’s storage costs, the ETF will experience contango even if the price of the asset is same. Infrastructure Capital Management CEO Jay Hatfield compared ETFs that roll futures contracts to “a very badly run hedge fund, because every month they have to go psychotically long something that keeps getting more expensive.” According to Hatfield, investors who are positive on commodities would be better served buying shares in the businesses engaged in production and storage rather than staying away from ETFs created for traders. “These ETFs are not efficient ways to make long-term bets on commodities,” he claimed. The only way to provide exposure to the underlying commodity without taking physical delivery of the commodity is for the funds to roll the futures contracts.

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Please note that this articles does not offer any instructions or suggestions regarding investment decisions. Therefore, it is essential that you carefully evaluate your financial situation and conduct thorough analysis, or seek advice from a qualified professional, before making any investment decisions.