ProShares, the largest issuer of geared ETFs that has made a push into the alternatives space, adding two more products to its lineup late last week. The new Ultra DJ-UBS Natural Gas (BOIL) and UltraShort DJ-UBS Natural Gas (KOLD) are both linked to the Dow Jones-UBS Natural Gas Subindex, a benchmark that consists of natural gas futures contracts. BOIL will seek to deliver daily results that correspond to 200% of the change in the underlying index, while KOLD will target -200% of the daily returns of the benchmark.
With the launch of the two new products ProShares now offers ten leveraged commodity funds, including ETFs linked to gold (UGL, GLL), silver (AGQ, ZSL), crude oil (UCO, SCO), and a broad basket of natural resource futures (UCD, CMD). “There has been strong demand for geared commodity ETFs, as investors have come to recognize the importance of commodities as part of their alternatives allocation,” said Michael L. Sapir, Chairman and CEO of ProShare Capital Management, the sponsor of the funds. “We are pleased to introduce the first geared ETFs designed to help investors manage risk or act on their views on natural gas.”Natural Gas ETFs
With the launch of KOLD and BOIL, there are now eight ETPs that offer exposure to natural gas futures contracts. The largest by far is the United States Natural Gas Fund (UNG), which maintains exposure to front month contracts. The issuer behind UNG also offers the 12 Month Natural Gas Fund (UNL), which spreads exposure across 12 different contract months. Other options for natural gas exposure include an ETN from iPath linked to the same index underlying the new ProShares ETFs (GAZ), as well as a unique product from UBS designed to exploit contango in natural gas futures markets (GASZ).
There are also a handful of exchange-traded products that offer exposure to stocks engaged in the natural gas industry, including drilling, transport, and exploration firms. In addition to the popular First Trust ISE Revere Natural Gas Index Fund (FCG), Direxion offers a pair of leveraged natural gas industry ETFs: GASL and GASX. Those products currently offer 2x daily leveraged exposure to their underlying index, but will convert to 3x products later this year [see Advanced Natural Gas ETF Investing].
Natural gas has become a popular corner of the commodity markets among active traders, in part because the fuel has a tendency to deliver relatively big changes in value over a short period of time. The weekly natural gas storage report from the EIA is a widely followed event that reveals the level of reserves in place and any material changes in the level of consumption. Natural gas prices also tend to be impacted by the occurrence of any extreme weather; unseasonably warm or cool temperatures lead to higher usage of air conditioners and heaters, which rely heavily on natural gas [also see Challenger To UNG: New Natural Gas ETF Debuts].
Because they offer geared (i.e., leveraged) exposure to natural gas, KOLD and BOIL should be rather volatile products. Moreover, given the daily reset of the leverage offered, these new ETFs are most appropriate for more active, short-term traders [see Leveraged ETF Center].
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Disclosure: No positions at time of writing.
- Natural Gas
- UltraShort DJ-UBS Natural Gas
- Dow Jones-UBS Natural Gas Subindex
- natural gas futures