As commodity ETFs have grown in popularity and have been heavily scrutinized by the Commodities Futures Trading Commission (CFTC), many commodity-tracking ETFs stopped issuing new shares in fear that position limits would soon be imposed.
One of the first to do so, despite having approval from the SEC to issue new shares, was the United States Natural Gas Fund (UNG). As a result and with continued investor demand, this ETF was trading at more than a 16% premium from the value of its underlying index. However, most recently UNG has announced that it will go against what it previously said and will issue new shares starting September 28.
In a recent filing with the SEC, UNG said it would resume offerings of creation baskets in blocks of 100,000 units. This announcement came after the CME announced that it will enforce existing position limits on the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade and the COMEX division of NYMEX.
This could potentially benefit UNG in that it is possible that the resumption of creation activity by the fund could reduce or remove any premium over NAV that is currently present. From an investor’s perspective, it could be good news for those who want to gain easy exposure to natural gas without paying a hefty premium. For those who paid a substanital premium for shares of UNG and held onto them, the announcement could be detrimental.
