Analyzing Natural Gas ETFs’ Performance Last Week

Natural gas ETFs

On August 24–31, the United States Natural Gas ETF (UNG) and the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) had returns of 0.3% and -0.3%, respectively. These ETFs track natural gas futures.

Analyzing Natural Gas ETFs’ Performance Last Week

Natural gas October futures rose 0.1% last week. UNG slightly outperformed natural gas futures during this period. UNG holds active natural gas futures contracts. BOIL’s objective is to track the changes of the Bloomberg Natural Gas Subindex twice a day.

Last week, among our list of natural gas–weighted stocks, Antero Resources (AR) and Gulfport Energy (GPOR) rose 0.1% and 0.6%, respectively. They were the outperformers on our list.

Long-term returns

From March 3, 2016, to August 31, 2018, natural gas active futures rose 77.9% from their 17-year low. During the same period, UNG rose 3.4%, while BOIL fell 34%.

Since March 3, 2016, UNG and BOIL have delivered lower returns compared to the relatively high gains in natural gas active futures. A negative roll yield might have driven these lower returns. A negative roll yield occurs when the prices for expiring futures contracts are lower than the following month’s prices for futures contracts. BOIL’s actual and expected returns could also be different due to the compounding impacts of price changes on a daily basis. In terms of the cost-of-carry model, the ETFs’ underperformance due to negative roll yields reflects the storage costs.

As of August 31, the closing prices of natural gas futures contracts for delivery between October 2018 and January 2019 settled in ascending order. The price pattern could be a negative development for these ETFs’ returns compared to natural gas’s returns.