Commodity investing has been quite choppy, pretty much across
the board. Political gridlock over government funding and the
debt ceiling continued to dull the demand for broad natural
resources, pushing many commodity ETFs into the red as of late.
In particular, natural gas showed a sharp pullback over the last
two week due to the broad commodity trends and natural gas specific
concerns such as excess supply and sluggish demand (read:
2 Ways to Short Natural Gas with ETFs
The bearish trend was reflected in the latest EIA storage report -
a key mover of the natural gas markets - in which supplies
continued to build for the key fuel. Natural gas stockpiles rose
101 billion cubic feet (bcf) in the week ending September 27, a bit
higher than the analyst expectation of 95 bcf.
This follows up a weak report from the previous week in which there
was a big supply build too. In that time period, natural gas
stockpiles rose 87 bcf, far higher than the analyst expectation of
Recent for the Increase
The main reason behind the surge is that mild weather has dampened
the demand for electricity at homes and business. Since roughly
one-fourth of all U.S. electricity is generated via natural gas, a
drop in electricity demand had a huge impact on the usage of this
This trend is expected to spill over in the weeks ahead as more
mild temperatures are expected across the nation. This would
prevent cooling demand-and also warming demand-- and put pressure
on natural gas (read:
Natural Gas ETFs Struggle on Cool Weather
Generally, demand for natural gas wanes at the end of summer as hot
temperatures recede and people use less fuel. On the other hand,
natural gas inventories accelerate before winter heating demand
kicks in, and we may now be in that part of the calendar year.
The jump in natural gas inventories and the lack of demand affected
natural gas ETFs over the past two weeks. And, ETFs tracking this
space could see rough trading in the days ahead given the bearish
outlook for the natural resource.
Below, we have highlighted some ETFs that directly deal in the
futures market of natural gas. Investors need to take some caution
while trading in these in the coming days, and especially so if
more supply builds hit in the weeks ahead (see:
all the Energy ETFs here
United States Natural Gas Fund (
This fund provides direct exposure to the spot price of natural gas
on a daily basis through future contracts. It is by far the most
popular and liquid ETF in the natural gas space with AUM of $909.1
million and average daily volume of 5 million shares.
The ETF charges 99 bps in annual fees and expenses. UNG lost about
6.8% in the past two weeks and is just negative in YTD terms.
Teucrium Natural Gas Fund (
This fund seeks to be a different way to play the natural gas
market and reduces the effects of both contango and backwardation.
Unlike UNG, the product utilizes four different contracts in order
to gain spread out exposure across multiple points on the curve.
The four contracts give the fund a focus on the key times in the
natural gas season at both the end and beginning of the heating and
cooling seasons (see more in the
Despite its unique approach, the fund failed to reach investor
interest as depicted by $3.3 million in AUM and just 4,000 shares
in average daily volume. Additionally, it is a high cost choice in
the space charging about 1.48% in annual fees. NAGS lost over 5.5%
in the past 10 trading sessions and it is down 2.25% in the
year-to-date time frame.
iPath Dow Jones-UBS Natural Gas ETN (
This is an ETN option for natural gas investors, delivering returns
through an unleveraged investment in the natural gas (currently the
Henry Hub Natural Gas futures contract traded on the NYMEX) futures
contract plus the rate of interest on specified T-Bills. The
product follows the Dow Jones-UBS Natural Gas Total Return
2 Commodity ETFs Offering Investors Sweet
The note has amassed $33.9 million in its asset base while it
trades in moderate volumes of more than 71,000 shares per day. It
charges 75 bps in fees per year from investors, while the ETN was
down nearly 6.5% in the past two weeks and has fallen 13% so far
Apart from these three products, other unleveraged natural gas ETFs
United States 12 Month Natural Gas Fund (
iPath Seasonal Natural Gas ETN (
- were also down 5.4 % and 7.6%, respectively, in the past two
Investors could see more supplies being added in the coming weeks
to the vast natural gas stockpile. This, coupled with the forecast
for more mild weather could hurt the natural gas ETFs further,
extending the brutal trading even further into October (read:
Play Goldman's Views with These Commodity ETFs
This suggests that investors might now look elsewhere in the space
for their commodity exposure, especially if big supply injections
remains the norm in the natural gas market.
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IPATH-SE NA GAS (DCNG): ETF Research Reports
IPATH-DJ-A NGAS (GAZ): ETF Research Reports
TEUCRM-NAT GAS (NAGS): ETF Research Reports
US-NATRL GAS FD (UNG): ETF Research Reports
US-12M NATL GAS (UNL): ETF Research Reports
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