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United States Natural Gas Fund NYSE:UNG

|Includes: The United States Natural Gas ETF, LP (UNG)


Natural gas futures were climbing this morning on a report that U.S. gas stockpiles in the past week fell more than expected. Gas will start to rally in a big way during 2011 making UNG a stand out buy.

Our price target is $10.

The U.S. Energy Information Administration reported that natural gas inventories fell by 135 billion cubic feet last week, above than consensus estimates for a withdrawal of 128 bcf, according to Dow Jones Newswires.

United States Natural Gas Fund, the world’s largest exchange-traded fund in the fuel, signaled it may consider a reverse split if gas prices extend a decline.
The $2.9 billion fund amended its limited partnership agreement to give its manager, United States Commodity Funds LLC of Alameda, California, explicit authority to implement a reverse split, the fund said in a Securities and Exchange Commission filing today. A reverse split reduces the number of shares of a fund or stock to boost the value per share.

The U.S. Natural Gas Fund tries to track the performance of natural gas at Henry Hub in Erath, Louisiana, the delivery point for the future traded on the New York Mercantile Exchange. The fund has underperformed gas since it began trading in April 2007, declining 88 percent while gas is down 40 percent. The hub price retreated 27 percent in 2010 and the ETF fell 41 percent.

“It is legally clearer now that the board could in fact order a reverse split,” John Hyland, the fund’s chief investment officer, said today in a telephone interview. “Depending on where the NAV goes in the near or medium or long term, we could see a situation where we could do a reverse split.”

The fund isn’t targeting a specific price threshold for a reverse split, Hyland said. A low net asset value can affect a fund’s ability to attract new investors and may result in a delisting from certain.

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