Investors Flee Natural Gas ETFs

UNG and BOIL suffer huge losses as the effects of contango take hold.

Wealth Management Editor
Reviewed by: Staff
Edited by: Mark Nacinovich

Investors in natural gas ETFs are feeling the burn of contango as the price of the commodity inches higher. 

While the price of the commodity is down about 26% from the start of the year, the two largest natural gas ETFs, the United States Natural Gas Fund LP (UNG) and the ProShares Ultra Bloomberg Natural Gas ETF (BOIL), are down 50% and 82% respectively. 

The reason the ETFs are so badly underperforming the underlying commodity has to do with the way the exchange-traded funds are designed to roll futures contracts on a monthly basis. When the price of the commodity is rising, the fund is forced to buy the next month’s contract at a higher price. 

Even if the price of the commodity is flat, the ETF will suffer contango because of the storage cost associated with the commodity. 

Jay Hatfield, chief executive officer at Infrastructure Capital Management, compared ETFs that roll futures contracts to “a very badly run hedge fund, because every month they have to go psychotically long something that keeps getting more expensive.”  

From Hatfield’s perspective, those who are bullish on commodities would be better off owning stock in the companies involved in the product and storage and avoid the ETFs that are designed for traders. 

“These ETFs are not efficient ways to make long-term bets on commodities,” he said. 

The funds are structured to roll the futures contracts because that is the only way to provide exposure to the underlying commodity without taking physical delivery of the commodity. 

Commodity ETFs Subject to “Contango” 

All funds structured to automatically roll their futures contracts are exposed to the phenomenon of contango when the price of the commodity is rising. When the price of the commodity is falling and futures contracts are getting less expensive, that’s called backwardation. Contango has been hitting UNG and BOIL all year, but the funds have only recently started to see big outflows. 

Over the past week, the $855 million BOIL has experienced more than $110 million in net outflows. The $1.2 billion UNG has seen more than $40 million worth of outflows over the same period. 

While Hatfield isn’t surprised by outflows or the poor performance, he does believe natural gas is a good investment heading into the winter months. “Natural gas is the most volatile of all the commodities because it’s so seasonal,” he said. “But there’s a lot of negative sentiment right now in the energy sector.” 

Paul Schatz, president of Heritage Capital, sees upside for natural gas as a seasonal play around the next corner. “The ETFs are structurally poorly designed because of the contract rolls, but natural gas is trading well going into winter,” he said. “It looks like a significant rally is coming.” 

Contact Jeff Benjamin at [email protected] and find him on X: @BenjiWriter     

Jeff Benjamin is the wealth management editor at, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.

Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.

Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.