United States 12 Month Natural Gas
While the United States Natural Gas ETF (UNG) remains the trader’s best friend when it comes to betting on rising natural gas prices, the fund has suffered big time from contango. ETFs based only on current prices lose money if a market is in contango because they have to buy the higher-priced, longer-dated contract and sell the cheaper spot month. So they are essentially selling low and buying high. Contango is constant and persistent problem in the natural gas sector.
However, United States Commodity Funds does offer a little known and perhaps better natural gas futures fund — United States 12 Month Natural Gas (UNL).
The ETF attempts to get around the contango problem by laddering its holdings with 12 months’ worth of natural gas futures. That helps smooth out the ride, but perhaps more importantly, leads to better long-term outperformance. UNL has managed to put up more impressive returns that its current future twin UNG.
Expenses for UNL run 0.75% and investors will get a K-1 statement come tax time.