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It is a very interesting graph for those who do not know the issues related to ETFs... but especially for those who do not know anything about backwardation/contango!

You should have added that the main reason for the discrepancy is not that UNG is badly built, but that there is a HUGE contango on Natural Gas, which have to be carefullly followed on all available future contracts on Natural Gas, not only on fronth month!


Why would you expect UNG (or any long-only commodity investment built around rolling futures) to increase in price as the futures curve steepens? A steeper curve makes the roll yield increasingly negative and the spot price of nat gas hasn't followed.

Profiting from a steepening futures curve is a different bet altogether and has nothing to do with the (mis)functioning of UNG.


This is why you DONT look at a continuous contract to determine if natural gas has gone up or down for the year. If you look at nat gas Jan 2010 futures, you see they started they ear at 7.5 and now they are trading at 5.75. So for the year, natural gas is still down ~23%. Contago takes care of bringing your loss to an even bigger %.


It would be very instructive - at least to folks like me - for you to comment on the differences in returns between UNG and FCG. Both track NatGas, but FCG has returned +60% year to date compared to -50% for UNG.

The fact that there are bad commodities ETFs is becoming well understood - much less well understood is that there very good ones that track much better.

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