United States Natural Gas Fund, LP (NYSEARCA:UNG) holds near-month futures contracts in natural gas, as well as swap contracts.
UNG invests primarily in futures contracts for natural gas that are traded on the New York Mercantile Exchange, NYMEX, ICE Futures Europe and ICE Futures U.S. and other foreign exchanges. The fund offers straightforward exposure to front-month natural gas futures, rolling expiring front-month contracts to the next nearest month.
This method increases the sensitivity to underlying gas prices and to the shape of the futures curve. The commodity’s contract is for natural gas delivered at the Henry Hub, Louisiana.
The fund primarily invests in natural gas futures listed in New York Mercantile Exchange (NYMEX) and may invest in forwards and swap contracts. Structured as a commodities pool, investors should expect a K-1 at tax time and a blended tax rate.
UNG currently trades around $14.48, has $504 million in net assets and an expense ratio of 1.11%, meaning it is relatively expensive to hold in relation to other exchange-traded funds.
U.S. LNG inventory is currently well below its five-year average, said Michelle Connell, CFA, president and owner of Portia Capital Management, of Dallas, Texas. The biggest issue for the U.S. LNG industry is that production of the energy source has never been profitable on its own but is a byproduct of oil production, she added.
“There isn’t enough oil being produced,” Connell said.
Currently, only 11.7 million barrels/day are being produced. Pre-pandemic, production hit 13 million barrels/day, Connell continued.
Instead of investing to increase capacity, oil companies have been focusing on boosting their dividends, Connell said. If they pivot, these companies face a backlash from investors via the sale of their stock, Connell added.
“Their market value could get crushed,” Connell said.
Of course, you will want to exercise your own due diligence in deciding whether this fund fits your own individual portfolio goals and needs.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.