Natural Gas and Petroleum ETFs and Their Underlying Indexes – UNG and GASL

Natural Gas stocks had a good time, surging to a historical high, and then plunged since the beginning of 2015, never been able to bounce back to the original level. In its prime time, numerous natural gas and petroleum ETFs, ETNs products were created to cater to the market mania. Now the total assets under them have been atrophied by ten-time folds, and a fair amount of small funds already ceased existence. Even though much less compared to the peak time, UNG and GASL still hold the ground with a substantial amount of capital underneath. Let’s take a deep dive of these two ETFs.

UNG, United States Natural Gas Fund LP, was established in April 2007, has since accumulated $450 million assets, tracking front-month natural gas. It offers straightforward exposure to front-month natural gas futures, rolling expiring front-month contracts to the next-nearest month. This method increases the sensitivity to underlying gas prices and to the shape of the futures curve. The expense fee is steep high 1.09%.

GASL, Direxion Daily Natural Gas Related Bull 3X Shares, different from UNG, is not derived from natural gas futures, but from corresponding stocks. It tracks ISE-REVERE Natural Gas Index. The fund achieves three-time leverage primarily with swap agreements. The expense ratio is also high as 1.08%. This index requires the selection of securities deriving a substantial portion of their revenues from midstream activities and/or the exploration and production of natural gas. In the event a company is involved in the exploration and production of crude oil and natural gas, a company is eligible if natural gas accounts for more than 40% of its total proved reserves. All of these filterings is doable based on a proprietary industry classification system from Factset Revere Hierarchy.

Now let’s see their price trajectory over the last 10 years. The chart is quite dramatic, not many investors in this territory can be calm given the steep plunge compared to flatten-look S&P500. GASL is extraordinarily risky and capricious because of the three-time amplifying effect.

 

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