United States Natural Gas Fund (UNG)

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United States Natural Gas Fund (UNG)

The United States Natural Gas Fund (UNG) is an exchange-traded fund (ETF) designed to provide investors with exposure to movements in U.S. natural gas prices without directly trading futures contracts. It seeks to track the daily percentage changes of the price of natural gas delivered to Henry Hub, Louisiana—the benchmark underlying NYMEX natural gas futures.

How UNG works

  • Investment objective: UNG aims to mirror the daily percentage change in the net asset value (NAV) of the NYMEX Henry Hub natural gas futures contract.
  • Instruments: The fund primarily holds natural gas futures contracts and may also use related futures, swaps, and forward contracts.
  • Collateral: Positions are collateralized by cash, cash equivalents, and U.S. government obligations with remaining maturities of two years or less.
  • Listing: UNG is listed on NYSE Arca and is one of the largest natural gas ETFs available to investors.

What UNG holds

  • Futures on the Henry Hub natural gas contract (primary exposure)
  • Other natural gas–related futures, swaps, and forward contracts
  • Short-term Treasury instruments and cash equivalents used as collateral

Performance drivers and risks

  • Commodity price exposure: UNG’s returns depend on movements in Henry Hub natural gas prices. Because it tracks daily percentage changes, returns over longer periods may diverge from spot price moves due to compounding.
  • Futures roll and market structure: As a futures-based ETF, UNG can be affected by roll costs when contracts are rolled from one month to the next (contango or backwardation), which can erode returns over time.
  • Fundamental factors: U.S. production trends (notably the shale gas boom), storage levels, and seasonal demand for heating and power generation materially influence Henry Hub prices and, therefore, UNG’s performance.
  • Volatility: Natural gas prices are historically volatile; investors should expect large price swings.

Costs and historical notes

  • Expense ratio (example snapshot): 1.28%
  • UNG was launched in 2007 and is managed by United States Commodity Funds.
  • The fund’s historical performance has at times been weak, reflecting extended periods of low Henry Hub prices driven by increased U.S. shale production and other supply/demand dynamics.

Who UNG may suit

  • Investors seeking commodity exposure to natural gas without trading futures directly.
  • Those with a clear view on short- to medium-term directional moves in U.S. natural gas prices and an understanding of futures-based ETF mechanics.
  • Not ideal for buy-and-hold investors who expect long-term parity with spot prices, due to roll costs, compounding effects, and futures market structure.

Key takeaways

  • UNG provides liquid ETF exposure designed to track daily percentage changes in NYMEX Henry Hub natural gas futures.
  • The fund invests mainly in futures, swaps, and forwards and collateralizes positions with cash and short-term U.S. government obligations.
  • Performance can diverge from spot natural gas prices over time because of roll costs, compounding, and volatility; production and demand fundamentals heavily influence returns.
  • Consider the fund’s costs, risks, and suitability for your investment horizon before investing.