Wednesday, October 14, 2009

UNG Looking at its Options for Natural Gas Investing

NEW YORK, Oct 13 (Reuters) - United States Natural Gas Fund (UNG.P), an exchange-traded fund in the natural gas market, said Tuesday that it could invest in interests other than futures contacts to comply with government-proposed position limits.

The move could expose UNG to potentially greater credit risk, the fund said in a filing Tuesday.

"Investments in over-the-counter swaps and other natural gas related interests expose UNG to potentially greater credit risk than futures contracts," UNG said.

UNG said it may invest in other interests including cash-settled options on futures contracts, forward contracts for natural gas, cleared swap contracts and over-the-counter transactions based on natural gas, crude oil and other petroleum-based fuels.

UNG told Reuters last month it rebalanced its portfolio to decrease positions in listed natural gas futures, while increasing the fund's holdings in over-the-counter natural gas swaps to fit with proposed government legislation. [ID:nN24189174]

UNG added that, despite the move, futures contracts will remain its principle investment. Currently, listed futures are around 50 percent of UNG's holdings, with cleared swaps (ICE Lots) around 30 percent and bilateral swaps about 20 percent.

However, going forward UNG could invest a larger proportion of investments outside of futures depending on regulatory changes.

"UNG may need to invest a larger portion, or potentially all, of its investments in other natural gas-related investments in order to continue to meet its investment objective and comply with these regulatory changes." (Reporting by Edward McAllister; Editing by Christian Wiessner)

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