Natural gas ETFs
On December 1–8, 2017, the United States Natural Gas Fund (UNG), which holds near-month natural gas futures contracts, fell 9.3%. Natural gas January 2018 futures fell 9.4% between these two dates.
The ProShares Ultra Bloomberg Natural Gas ETF (BOIL) fell by 70 basis points—less than double the fall in natural gas futures. It almost matched its objective to follow twice the daily changes of the Bloomberg Natural Gas Subindex. BOIL underperformed UNG.
From the 17-year low
Between March 3, 2016, and December 8, 2017, natural gas active futures rose 69.1%. On the former date, natural gas (GASL) (GASX) (FCG) active futures were at the lowest closing price in 17 years. However, UNG and BOIL have fallen 4.5% and 32% since natural gas hit its 17-year low.
The negative roll yield could have the returns in these natural gas–tracking ETFs. The roll yield exists because of the price difference between two consecutive futures contracts. If the prices of active futures and the following month’s futures are in ascending order, these ETFs could bear losses. Read Are Natural Gas Supply Fears Rising? to learn about the impact of differences in natural gas futures prices.
On December 8, 2017, natural gas futures contracts between February and April 2018 were priced in a descending pattern. The pattern would benefit these ETFs in the short term.
In BOIL’s case, the compounding effect of daily price fluctuations might cause its returns to differ from its expected returns.