With the first quarter of 2012 in the books and upon reviewing returns across the ETF landscape, the best performing fund in absolute terms thus far is ProShares UltraShort DJ-UBS Natural Gas (NYSEArca: KOLD) , having rallied 101.89% year to date.
KOLD is a leveraged inverse product, delivering 2 times the inverse daily return of the Dow Jones-UBS Natural Gas Subindex (which tracks Henry Hub Natural Gas futures). It’s designed as a trading vehicle rather than a buy-and-hold investment.
It is no secret that natural gas prices have been in a downward spiral for the greater part of the past 3 years, and this product has rallied accordingly. [Natural Gas Premium: Don't Get Stepped on by GAZ]
On the flipside, ProShares Ultra DJ-UBS Natural Gas (NYSEArca: BOIL) is structured as a “long” product and delivers 2 times the return of the same index as KOLD, and is down 80.31% year to date. Since these products are structured as “daily” bull and bear issues, constant monitoring and rebalancing is necessary in order to optimize usage and total returns.
As with any daily leveraged product, the trend is largely your friend if you are on the “right side” of a move, and thus it is possible to realize returns outside of your expected parameters if the trend quickly, and consistently goes with you, but conversely, choppiness or a lack of any trend whatsoever can be damaging to overall returns for those attempting to buy and hold such ETF products. [How Volatile Markets Impact Leveraged ETFs]
One thing is apparent however, even though KOLD and BOIL only debuted in October of last year they are beginning to attract an increased amount of trading volume as well as assets under management. [Natural Gas ETN Premium Tumbles]
ProShares UltraShort DJ-UBS Natural Gas