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Natural Gas Fell, Impacted Natural Gas ETFs

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Natural gas ETFs

On January 25–February 1, the United States Natural Gas ETF (UNG) fell 10.8%, while the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) fell 20.8%. These ETFs track natural gas futures.

UNG has outperformed natural gas March futures, which have fallen 11% in the past five trading sessions. A fall in natural gas prices could be negative for natural gas–weighted stocks. Range Resources (RRC), Cabot Oil & Gas (COG), Southwestern Energy (SWN), and Gulfport Energy (GPOR), the weakest natural gas–weighted stocks, fell 2.8%, 3.2%, 3.3%, and 4.9%, respectively, last week.

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Long-term returns and the forward curve

Between March 3, 2016, and February 1, 2019, natural gas active futures rose 66.8% from their 17-year low, while UNG and BOIL returned 5.5% and -48.8%, respectively. Since March 3, 2016, UNG and BOIL have delivered lower returns than natural gas active futures, possibly due to a negative roll yield. In a cost-of-carry model, ETFs’ underperformances due to negative roll yields reflect storage costs.

BOIL’s actual and expected returns could also be different due to daily price changes. On February 1, natural gas futures for delivery between March and April 2019 closed in descending order, which could be a positive sign for these ETFs’ returns.

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