Wednesday, September 2, 2009

DXO to Close Fund, UNG Next?

More regulatory trouble for commodity funds. Duetsche Bank announced it will redeem shares for its double-long oil fund, which I refer to as DXO, which is the symbol. These funds have been under scrutiny from the CFTC for owning too many contracts. I'm worried the same fate will happen to UNG, or the natural gas fund, which I own shares. They already halted new shares in July, and I haven't had a good feeling with it since. On one hand, a lot of people want to own natural gas because it has gotten so cheap, and the prospects are great (like I've said many times). But because of the halt of new shares, demand has held UNG at a large premium (around 20%) over NAV, which is around 9.33 as of this morning. If UNG decides to go the same route, I wouldn't be surprised if they redeemed shares closer to the NAV rather than the current trading price. If they do not, that premium could stay there awhile as a lot of people want to invest in this.

To make a long story short, I'm going to sell part of my position in UNG or maybe even all of it. This in no way changes my outlook for natural gas. I'm just going to find different ways to play it. I'm going to have to take a decent hit on UNG due to depressed gas prices, but I can make that up later as I feel gas prices will rise in 2010. I'll post when I make some purchases. Contango Oil and Gas (MCF) is one I'll likely look at, and surely I'll have some exposure if I decide to buy Loews (L).

Disclosure: Long UNG

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