What Is the United States Natural Gas Fund (UNG)?
Let me tell you about the United States Natural Gas Fund, or UNG. This is an exchange-traded fund, an ETF, that's built to follow the ups and downs of natural gas prices. It's the biggest one out there for natural gas, with shares trading on the NYSE Arca. If you're looking to invest in natural gas, UNG lets you do that without diving into the messy world of futures markets, which can be too complicated and risky for everyday investors like you.
Key Takeaways on UNG
UNG aims to track the percentage changes in natural gas futures contracts on the NYMEX, specifically the Henry Hub Natural Gas futures, which is the main benchmark for U.S. natural gas. You can find this ETF listed on the NYSE Arca, and it puts money into natural gas futures, swaps, and forwards. It's the largest ETF of its kind. That said, its performance hasn't been great, thanks to the steady drop in Henry Hub prices driven by the growth of the U.S. shale industry.
Understanding the United States Natural Gas Fund (UNG)
Before ETFs like this came along, if you wanted exposure to natural gas, you had to mess with futures contracts, which is far more involved than just buying or selling stocks. Now, with UNG, you get that commodity-like exposure without actually handling the commodity directly. It's straightforward for you as an investor.
As the largest natural gas ETF based on futures, UNG's goal is to have its daily net asset value changes match the daily percentage changes in the price of natural gas delivered to Henry Hub in Louisiana. That's tracked through the Henry Hub natural gas futures contract on the NYMEX. Henry Hub is the biggest trading hub by volume and sets the benchmark for U.S. gas futures.
The Impact of Falling Prices
You've probably heard about the U.S. shale boom—it's been pushing Henry Hub gas prices down, and that's hit UNG's performance hard. According to the U.S. Energy Information Administration, prices might start to rise in the second quarter of 2020 as production slows and demand picks up for power generation. But until then, it's been a tough ride.
How UNG Invests and Its Background
UNG mainly invests in natural gas futures contracts, but it also dips into related futures, forwards, and swaps. These investments are backed by cash, cash equivalents, and U.S. government obligations that mature in two years or less.
This fund launched back in April 2007, put together by what was then Victoria Bay Asset Management—now called United States Commodity Funds, LLC—and the American Stock Exchange. It's still managed by United States Commodity Funds.
A Snapshot of UNG
Here's a quick look at UNG as of February 12, 2020. It had net assets of $530.8 million, an average trading volume of 4,667,496 shares, an expense ratio of 1.28%, and a one-year performance drop of 40%. The previous close was at 14.03, with top holdings including the Natural Gas Futures Jan 20 contract at 48.5% and United States Treasury Bills at 1.5%.
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