United States Natural Gas Fund (UNG)

What Is the United States Natural Gas Fund (UNG)?

The United States Natural Gas Fund (UNG) is an exchange traded fund (ETF) with the stated goal of following the movement of natural gas prices. It is the largest natural gas ETF with shares available on the NYSE Arca. The fund provides access to investing in natural gas without having to invest in the futures market, which is a complicated and risky route for the regular investor.

Key Takeaways

  • The United States Natural Gas Fund (UNG) is a natural gas ETF whose goal is to track the percentage movements of the natural gas futures contract on the NYMEX.
  • The NYMEX natural gas contract is the Henry Hub Natural Gas futures, the primary U.S. benchmark for natural gas.
  • The ETF is listed on the NYSE Arca and invests in natural gas futures, swaps, and forwards. It is the largest natural gas ETF.
  • The performance of the ETF has been poor, given the consistent drop in prices of Henry Hub, as the U.S. shale industry grows and adversely impacts Henry Hub prices.

Understanding the United States Natural Gas Fund (UNG)

Before ETFs became widespread, investors had to invest in futures to gain exposure to natural gas, which is much more complicated than buying or selling stock on an exchange. With the advent of ETFs, investors became able to easily invest in natural gas without the risk of having to buy or sell futures. It is having commodity-like exposure without directly investing in the commodity.

UNG is the largest natural gas ETF with a futures base. Its investment goal aims for the daily percentage changes of its net asset value (NAV) to mirror the daily percentage changes of the price of natural gas delivered to Henry Hub, Louisiana. This is measured with the Henry Hub/natural gas futures contract on the NYMEX. Henry Hub is the largest gas hub in terms of trading volumes and the benchmark for U.S. gas futures.

Falling Prices

Henry Hub gas prices have been falling with the U.S. shale boom, which has been reflected in the performance of UNG. The U.S. Energy Information Administration (EIA) believes that prices will increase in the second quarter of 2020 as gas production will slow down and demand for gas will increase for power generation needs.

UNG invests primarily in natural gas futures contracts but also in natural gas-related futures as well as forwards and swaps. The investments are "collateralized by cash, cash equivalents, and US government obligations with remaining maturities of two years or less."

The United States Natural Gas Fund (UNG) was introduced in April 2007 by Victoria Bay Asset Management (now known as United States Commodity Funds, LLC) and the American Stock Exchange. It is managed by United States Commodity Funds.

Snapshot of the United States Natural Gas Fund (UNG)

As of Feb. 12, 2020, UNG has the following profile:

  • Net assets: $530.8 million
  • Average volume: 4,667,496
  • Expense ratio: 1.28%
  • One year performance: -40%
  • Previous close: 14.03
  • Top holdings: Futures contract on Natural Gas Futures Jan 20 (48.5%); United States Treasury Bills (1.5%)
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