Every month, we publish a table that compares popular long-only commodity fund performance with the results of purchasing a December futures contract in the same commodity and rolling that contract annually. Typically, the futures contract outperforms- but this has always been most clear in Natural Gas and the UNG fund. As if you needed more convincing to stay away from those long-only funds, IndexUniverse reports:
The winner … or should I say the loser … of the worst-performing ETF contest is the United States Natural Gas ETF (NYSEArca: UNG).
Like most of the other products profiled here, UNG is actually a great ETF. It tracks well, trades extraordinarily well and provides exactly the exposure it claims to provide: exposure to front-month natural gas.
Unfortunately, as mentioned in the GAZ writeup, that’s been a terrible place for investors to be. With sharp contango and declining prices, UNG has dropped 96 percent of its value since inception. Investors have poured $4.3 billion in cash into the ETF, and it only has $712 million left.
Performance has been so bad, in fact, that UNG has now had to do two reverse splits: a 2-for-1 split in March 2011, and a 4-for-1 split in February of this year. The fund closed today at $14.58; if current trends continue, another split could be necessary in a few more months.
How many people do you think piled into this thinking they were investing in a long-term bet on natural gas instead of just the front month performance? How much of that $4 Billion even understands the difference between front month performance for a commodity and its long term performance? There’s no way to know, but we’d guess it’s at least half of that number – showing you need to do more than just look at an ETFs name and assume it gives you the exposure its name implies.
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
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