Don Dion's Weekly ETF Blog Wrap

Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog -- anticipating which ETFs will be in play next. Among his posts this week were the following entries on natural gas ETFs, avoiding the retail plague and the U.S. dollar bottoming.

Click here for information on RealMoney, where you can read daily blogs, including Don Dion's, and reader comments in real time.

UNG Getting Too Big for Its Britches

Posted June 16, 2009 6 a.m. EDT

U.S. Natural Gas(UNG Quote) powered through the close yesterday and gained 7% even as oil prices tumbled. U.S. Oil(USO Quote) lost 2.3% and PowerShares DB Oil(DBO Quote) fell 1.8%.

Interest in the ETF has risen so greatly that the fund wants to issue 10 times the number of shares, according to a Dow Jones report, while the Financial Times' Alphaville blog reports that some of the new money flowing into UNG has been used to buy swaps instead of futures due to the heavy buying of late.

This means investors are not getting exactly what is promised, since the fund is holding swaps instead of futures contracts. This is confirmed by a visit to the fund's Web site, where investors can see the current holdings.

Another issue is the one of contango, which becomes a greater problem as the fund grows in size. UNG, like USO, uses a "dumb" strategy in that it rolls into the next month's contract. In small amounts, this isn't an issue because the fund is a small part of the market. But as it grows in size, its roll can become a large percentage of daily volume. By announcing its trade well in advance of the trade date, other traders can take advantage of the information and earn a profit at shareholders' expense.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting