Natural gas ETF plunges more than fuel even as shares sell out
Tuesday, 21 July 2009
NEW YORK, July 20 (Bloomberg): The largest exchange-traded fund for natural gas, so popular that it ran out of shares two weeks ago, has lost 43 per cent this year and probably will keep falling until winter, trailing the fuel it's supposed to track.
The United States Natural Gas Fund will suffer from record- high gas inventories and seasonal prices hitting the ETF harder than the fuel, said Teri Viswanath, the director of commodities research at Credit Suisse Securities USA in Houston. Investors piled into the fund this year, driving up its number of outstanding shares 11-fold.
"The amount of interest in this fund is a surprise given the trend in gas is down and not looking to change any time soon," said Tom Orr, the director of research for Weeden & Co. LP, a Greenwich, Connecticut, securities brokerage, in a telephone interview. He predicted natural gas, this year's worst performing major commodity, will fall below $3 per million British thermal units next month, from $3.669 on July 17, and rise to $4 in the fourth quarter.
The $4.6 billion fund, managed by United States Commodity Fund LLC in Alameda, California, made 300 million new shares available May 6 and grew to 347.4 million shares before running out July 7. It's awaiting Securities and Exchange Commission approval to sell up to a billion more.
"If I knew then what I know now, we certainly would have registered a lot more shares than 300 million back a few months ago," said John Hyland, the ETF's chief investment officer.
Its popularity coincides with a boom in commodity-backed funds. Investors poured $16.9 billion into such ETFs this year through May 31, more than triple last year's first five months, according to the Investment Company Institute, a Washington trade group.
The United States Natural Gas Fund will suffer from record- high gas inventories and seasonal prices hitting the ETF harder than the fuel, said Teri Viswanath, the director of commodities research at Credit Suisse Securities USA in Houston. Investors piled into the fund this year, driving up its number of outstanding shares 11-fold.
"The amount of interest in this fund is a surprise given the trend in gas is down and not looking to change any time soon," said Tom Orr, the director of research for Weeden & Co. LP, a Greenwich, Connecticut, securities brokerage, in a telephone interview. He predicted natural gas, this year's worst performing major commodity, will fall below $3 per million British thermal units next month, from $3.669 on July 17, and rise to $4 in the fourth quarter.
The $4.6 billion fund, managed by United States Commodity Fund LLC in Alameda, California, made 300 million new shares available May 6 and grew to 347.4 million shares before running out July 7. It's awaiting Securities and Exchange Commission approval to sell up to a billion more.
"If I knew then what I know now, we certainly would have registered a lot more shares than 300 million back a few months ago," said John Hyland, the ETF's chief investment officer.
Its popularity coincides with a boom in commodity-backed funds. Investors poured $16.9 billion into such ETFs this year through May 31, more than triple last year's first five months, according to the Investment Company Institute, a Washington trade group.