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Analyzing Natural Gas ETFs’ Returns Last Week

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Natural gas ETFs

On December 7–14, the United States Natural Gas ETF (UNG) fell 15.8%, while the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) fell 26.8%. 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 January futures fell 14.7% in the past five trading sessions. BOIL underperformed natural gas’s fall during this period.

The fall in natural gas prices could be negative for natural gas–weighted stocks. Antero Resources (AR), Southwestern Energy (SWN), Chesapeake Energy (CHK), and Range Resources (RRC), the weakest among the natural gas–weighted stocks, fell 11.3%, 13.4%, 14.3%, and 15%, respectively, last week.

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Long-term returns

From March 3, 2016, to December 14, 2018, natural gas active futures rose 133.5% from their 17-year low, while UNG and BOIL returned 32.8% and -6.2%, 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.

Forward curve

As of December 14, natural gas futures for delivery between January and May 2019 closed in descending order, which could be a positive sign for these ETFs’ returns compared to natural gas’s returns.

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