Natural gas ETFs
On December 21–28, the United States Natural Gas ETF (UNG) fell 9.4%, while the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) fell 17.5%. These ETFs track natural gas futures. UNG holds active natural gas futures contracts, while BOIL’s objective is to track twice the daily changes of the Bloomberg Natural Gas Subindex.
Natural gas February futures fell 11.9% in the past four trading sessions. UNG outperformed natural gas’s fall during this period.
The fall in natural gas prices could be negative for natural gas–weighted stocks. Gulfport Energy (GPOR), Cabot Oil & Gas (COG), Antero Resources (AR), and Range Resources (RRC), the weakest among the natural gas–weighted stocks, returned 1.8%, 0.6%, -2%, and -3.4%, respectively, last week.
From March 3, 2016, to December 28, 2018, natural gas active futures rose 101.5% from their 17-year low, while UNG and BOIL returned 18.3% and -29.1%, respectively. Since March 3, 2016, UNG and BOIL have delivered lower returns than natural gas active futures, possibly due to a negative roll yield. BOIL’s actual and expected returns could also be different due to daily price changes. In a cost-of-carry model, ETFs’ underperformance due to the negative roll yield reflects storage costs.
As of December 28, natural gas futures for delivery between February and May 2019 closed in descending order, which could be a positive sign for these ETFs’ returns compared to natural gas’s returns.