dwb

Natural Gas ETF Suspends New Shares: Are There Alternatives?

counterparty risk-> on ICE cleared OTC swaps the risk is essentially the same as NYMEX cleared products. UNG does not face the counteryparty directly though ICE clearing. Liquidity on ICE for the look-alikes is fine. Clearly the author does not understand ICE cleared products.

closed ended-> Since when are futures and swaps "closed ended." wha? USL uses swaps to track "12 month oil". The real risk is that the swaps perform differently than the prompt (that is, if UNG uses 3, 6, 12 month swaps instead of mostly prompt and prompt +1). A 6 month swap will perform very differently than 1 month prompt and is likely to outperform prompt declining prices and underperform prompt rising prices (back months will not rise/fall as much as prompt). For example, suppose there is a hurricane: Oct and Nov production get disrupted so those contracts soar. Dec, Jan, Feb mos are increasingly less likely to be affected and rise less. The increase in a swap will be the avg increase of all those months. If UNG uses 2-month swaps or prompt and prompt+1 then UNG rises the full amount of oct and nov futures increases. If UNG uses a 6-month swap it rises less (the avg increase of all 6 forward months).

On the roll yield, using swaps might actually mitigate the loss in a steeply contango market as less is lost rolling the back month(s) if the contango flattens after 6 months as it does now. Of course, this depends on the term of the swaps and the shape of the contango.