Natural Gas ETF Premium Collapses - ETF News And Commentary
January 21 2013 - 8:04AM
Zacks
Earlier in the month, we told you about a regulatory issue which
forced a few natural gas ETFs to experience a modest premiums.
These ETFs, the United States 12 Month Natural Gas Fund
(UNL) and the United States Short Oil Fund
(DNO), were required to halt creations as a result of an
SEC paperwork holdup for a few days.
The snag pushed UNL to a couple percentage point premium over
its NAV, at least for a few days. This means that the product was
sort-of trading like a closed-end fund and that the trading value
of the ETF was higher than the underlying security due to the
temporary scarcity of the shares (see Caution: Natural Gas ETF
Trading at Premium).
However, as expected, the SEC paperwork issues were resolved and
the funds were able to create new shares after a few days. Once
these new shares hit the market, the premium over NAV collapsed
pushing UNL back down to trading at its net asset value.
The issue took just a week to resolve and for investors who
either held their shares across the period or those who waited
until the 16th to get into UNL, it wasn’t much of a
problem. However, for investors who bought or sold during this
strange premium time, returns may have been slightly higher than
what one would have expected, based on the underlying performance
of the natural gas futures in the product.
This means that it probably was a decent time to sell UNL,
although the fund has continued to rally past the highest premium
point in recent days. Still, for investors looking to cash out with
a high premium over NAV, the recent trading period was among the
best, as the product has done a remarkably good job of tracking its
net asset value besides this recent one week aberration (see Have
the Natural Gas ETFs Finally Bottomed Out?).
It is also worth pointing out that investors did not see a
similar situation in other natural gas ETFs in recent trading. The
other two competing products, UNG and
NAGS didn’t see a spike in premiums, and actually
both saw a discount during UNL’s troubled week.
All three are now trading pretty close to NAV, but it is worth
noting that these kinds of problems can happen from time to time.
Due to this, it is very important to check out an ETF and where it
is trading in comparison to its NAV—especially in the
futures/commodities world—before buying or selling a product (see
The Comprehensive Guide to Natural Gas ETFs).
While the difference may not be enormous, a couple of percentage
points can make a big deal in the long run. So just remember to use
extreme caution when dealing with ETFs that are trading at a
somewhat artificial premium (or discount) to NAV, as you can never
be sure how long these types of issues will last.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30
Days. Click to get this free report >>
Follow @Eric Dutram on Twitter
US-SHRT OIL FD (DNO): ETF Research Reports
TEUCRM-NAT GAS (NAGS): ETF Research Reports
US-NATRL GAS FD (UNG): ETF Research Reports
US-12M NATL GAS (UNL): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days. Click
to get this free report
United States 12 Month N... (AMEX:UNL)
Historical Stock Chart
From Jun 2024 to Jul 2024
United States 12 Month N... (AMEX:UNL)
Historical Stock Chart
From Jul 2023 to Jul 2024