The United States 12 Month Natural Gas Fund (NYSEArca:UNL) leaped 2.5 percent Friday, building up a premium to its net asset value as a suspension in its creations linked to the filing of regulatory paperwork went into its second day.
Shares of the ETF traded as high as $17.51, tagging on a premium of 2.9 percent relative to its intraday net asset value of $17.00 a share. That premium was as wide as 3.3 percent at one point in the session, according to data compiled by IndexUniverse-a move that is making it seem a bit like a closed-end fund until creations are resumed.
Creations on UNL were halted Thursday, as the fund's sponsor, United States Commodity Funds, fulfilled a regulatory requirement to update its registration statement. Creations will remain halted until the Securities and Exchange Commission approves the new document, a process that can take a few days, sources say.
The halt in creations breaks the mechanism that usually prevents an ETF from trading at significant premiums to its NAV because investors are chasing a limited supply of shares in the secondary market. When creations-and redemptions-are happening normally, funds tend to closely track their underlying NAV.
The price action is similar-for today, at least-to what happens to the iPath Natural Gas ETN (NYSEArca:GAZ) on an ongoing basis. It has been closed to creations since late 2009, and since then its market price has, at times, ballooned to more than 100 percent of NAV.
It's basically a closed-end fund now, and as far as that goes, it's also a "broken" security, as IndexUniverse analyst Carolyn Hill called it in a blog.
Apart from UNL's itinerant status as a closed-end fund, traders are also linking UNL's momentum to above-average trading volume as the fund flirts with its 200-day moving average, attracting investor attention.
From a fundamental perspective, renewed strength in the natural gas market in the past few days tied to forecasts for colder-than-normal temperatures in the U.S. Midwest and East Coast is also helping UNL rise, HardAssetInvestor.com analyst Sumit Roy said.
Still, it's worth noting that overall, the U.S. winter has been a mild one, and prices have recently "merely recovered" the losses from earlier in the week, Roy said.
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