United States Natural Gas Fund (UNG): Meaning, How it Works

What Is the United States Natural Gas Fund (UNG)?

The United States Natural Gas Fund (UNG) is an exchange traded fund (ETF) that aims to follow natural gas price movements. It is the largest natural gas ETF available on the NYSE Arca. This fund allows investors to invest in natural gas without going through the complicated and risky futures market.

Key Takeaways

• The United States Natural Gas Fund (UNG) is a natural gas ETF that tracks the natural gas futures contract movements on the NYMEX.
• The NYMEX natural gas contract is the Henry Hub Natural Gas futures, the primary U.S. benchmark for natural gas.
• The ETF is listed on the NYSE Arca and invests in natural gas futures, swaps, and forwards. It is the largest natural gas ETF.
• The ETF’s performance has been poor due to the consistent drop in Henry Hub prices caused by the growth of the U.S. shale industry.

Understanding the United States Natural Gas Fund (UNG)

Before the widespread use of ETFs, investors had to trade in futures to gain exposure to natural gas. This process was more complicated than buying or selling stocks. ETFs made it easy for investors to access natural gas without the need to buy or sell futures. Essentially, it provides commodity-like exposure without direct investment in the commodity.

UNG is the largest natural gas ETF with a futures base. Its investment goal is to mirror the daily percentage changes of the price of natural gas delivered to Henry Hub, Louisiana, measured by the Henry Hub/natural gas futures contract on the NYMEX. Henry Hub is the largest gas hub in terms of trading volumes and serves as the benchmark for U.S. gas futures.

Falling Prices

Henry Hub gas prices have fallen due to the U.S. shale boom, which has impacted the performance of UNG. The U.S. Energy Information Administration (EIA) believes that prices will increase in the second quarter of 2020 as gas production slows down and demand for power generation increases.

UNG primarily invests in natural gas futures contracts and also in related futures, forwards, and swaps. The investments are collateralized by cash, cash equivalents, and U.S. government obligations with remaining maturities of two years or less.

UNG was introduced in April 2007 by Victoria Bay Asset Management (now known as United States Commodity Funds, LLC) and the American Stock Exchange. It is managed by United States Commodity Funds.

Snapshot of the United States Natural Gas Fund (UNG)

As of Feb. 12, 2020, UNG has the following profile:

• Net assets: $530.8 million
• Average volume: 4,667,496
• Expense ratio: 1.28%
• One year performance: -40%
• Previous close: 14.03
• Top holdings: Futures contract on Natural Gas Futures Jan 20 (48.5%); United States Treasury Bills (1.5%)