UNG ETF Review: Is US Natural Gas Fund Worth Buying?

United States Natural Gas Fund tracks natural gas futures and suffers from the same severe contango roll costs as USO, making it a short-term trading vehicle for natural gas price bets rather than a viable long-term investment in the natural gas theme.

Last updated: 2026-02-02 · Data: Yahoo Finance, fund prospectuses, SEC filings

What Is UNG?

The United States Natural Gas Fund (UNG) tracks the price movements of natural gas through front-month NYMEX futures contracts. Managed by United States Commodity Funds, this ETF gives investors direct exposure to natural gas price volatility without the complexities of futures trading. UNG holds natural gas futures contracts and cash equivalents, making it the largest and most liquid way to trade natural gas in the ETF wrapper.

Expense Ratio: 1.24% | AUM: $551M | Inception: April 2007

Current Snapshot

Why It Matters for Real Asset Investors

UNG serves as a hedge against natural gas price spikes within the Energy Macro framework, particularly around grid stability risks and energy shortage scenarios. When power grids face stress from extreme weather or supply disruptions, natural gas often becomes the marginal fuel that determines electricity prices. This makes UNG a tactical position for periods when energy scarcity drives commodity prices higher.

The fund aligns with our infrastructure thesis because natural gas remains the backbone of grid reliability in most regions. Unlike renewable sources, gas-fired plants provide dispatchable power that can ramp up quickly when solar and wind production falls short. This means natural gas prices often spike during the exact moments when grid stress is highest—making UNG a potential portfolio hedge during blackout-risk periods.

However, UNG carries significant structural headwinds. The fund suffers from contango decay when futures curves are upward-sloping, meaning longer-term contracts cost more than near-term ones. This creates a drag on returns over time as the fund constantly rolls expiring contracts into more expensive ones. UNG works best as a short-term trade during supply crunches, not a long-term hold.

Top Holdings

UNG's holdings consist entirely of natural gas futures contracts and cash management tools:

• NYMEX Natural Gas Front-Month Futures: The fund's primary exposure, typically rolled monthly
• Cash and Cash Equivalents: Maintained as margin and for operational needs
• U.S. Treasury Securities: Short-term paper used for collateral management

The fund's structure means holdings change constantly as contracts expire and roll forward. Unlike equity ETFs, there are no permanent company holdings—just exposure to the commodity itself.

How It Fits the Portfolio

UNG functions as a short-term hedge rather than a core allocation within a real assets portfolio. Position sizes should remain small—typically 1-3% of total assets—because of the inherent volatility and structural decay. The fund pairs well with utility stocks and renewable energy infrastructure during periods when energy security concerns drive both defensive positioning and commodity spikes.

I'm watching UNG during winter heating seasons, geopolitical tensions affecting LNG exports, and periods when renewable energy production falls short of demand. These scenarios often create natural gas price spikes that benefit UNG holders. However, the timing matters enormously—holding through contango periods destroys returns even when the underlying commodity performs well.

Regime Signals

UNG outperforms during supply disruption scenarios: pipeline outages, extreme weather events, and geopolitical tensions affecting global LNG markets. The fund also benefits from periods of high electricity demand when gas-fired power plants become the marginal source of generation. Cold snaps in major consumption areas often create the strongest tailwinds.

The fund struggles during mild weather periods, oversupply conditions, and extended contango markets. Rising interest rates can also pressure commodity ETFs like UNG by increasing the cost of holding futures positions. Dollar strength typically weighs on commodity prices, creating another headwind for natural gas exposure.

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Frequently Asked Questions

Is UNG a good investment for natural gas?

UNG is one of the worst long-term investments in the ETF universe due to extreme contango roll costs in natural gas futures. The fund has lost over 95% of its value since inception through continuous roll drag, even as natural gas prices have had significant rallies. UNG should only be used for short-term trades (days to a few weeks) on natural gas price direction. For structural natural gas exposure, use equity-based ETFs like FCG instead.

Why has UNG lost so much money over time?

Natural gas futures have the steepest contango curve of any major commodity, meaning longer-dated contracts trade at substantial premiums to front-month prices. Every time UNG rolls its expiring contracts forward, it sells low and buys high. This negative roll yield compounds relentlessly, destroying value regardless of where spot natural gas trades. The mathematics of futures roll make UNG structurally designed to decline.

What is the expense ratio of UNG?

UNG charges a 1.11% management fee — already high — but the real cost is the futures roll drag that can exceed 20-30% annually in steep contango environments. The stated expense ratio dramatically understates the true cost of holding UNG. This is the most expensive way to get natural gas exposure on a total-cost basis, which is why Energy Macro strongly recommends equity alternatives.

When is UNG appropriate to use?

UNG has a narrow use case: short-term tactical trades on natural gas price spikes, typically driven by weather events (polar vortex, hurricane season) or supply disruptions. Holding periods should be measured in days, not months. Professional natural gas traders prefer futures directly, but retail investors without futures accounts can use UNG for quick directional bets. It should never be a portfolio allocation.

For our complete allocation framework across real assets, infrastructure, and income strategies, see The Blackout Fortune Playbook.

Last updated: February 1, 2026 | Data: Yahoo Finance, USCF filings