UNG’s Volatility in Two Charts

by on April 23, 2014 | ETFs Mentioned:

The United States Natural Gas Fund (UNG, C+) is among the most heavily-traded ETFs in the world. Tracking front-month NG futures, UNG has solidified its place as a trader’s delight, featuring hefty volatility and strong liquidity. As natural gas remains one of the most unpredictable and turbulent commodities, so too does UNG, as the ETF has become well-known for its frequent daily movements [for more ETF news and analysis check out our Daily ETF Roundup].

Since its debut in early 2007, UNG has traded more than 1,700 sessions. The chart below takes the fund’s daily movements and distributes them over select ranges of performance. Each column represents the number of sessions UNG fell within that specific range:

As the chart above displays, UNG tends to lose ground a bit more often than it claims. Some may be surprised to see that the fund has moved by an absolute value of 3% to 6% just over 20% of the time. Also note that the fund has had some truly wild trading days – its best performance came on 6/14/2012 when it jumped 14.95% and its worst performance came on 8/20/2007 when it lost 12.36% [see also Finding a Better Natural Gas ETF: Exploring NAGS].

Dragging out the timeline to monthly returns reveals that UNG is truly all over the board. The ETF has made it through more than 80 calendar months and has seen its fair share of highs and lows:

On a monthly timescale, UNG also tends to lose more than it gains. This result is not entirely surprising, as NG has been taking a big hit since the 2008 recession. This chart also helps to display why UNG is primarily used as a trading instrument rather than a product to buy and hold over the long term, as it is often too volatile for most passive investors.

The Bottom Line

Taking a step back and looking at a particular fund with a new set of eyes is always a healthy exercise. In the case of UNG, we are reminded why the fund is more useful to active traders and how it can be a burden to passive investors. The fund’s volatility should not ward off anyone who is interested, it simply demands that you do your homework and ensure that you have the time and patience to keep up with the product.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.