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Short and leveraged natural gas ETFs see strong inflows

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The recent price surge in natural gas prices does not look to be treated as a long term swing if exchange-traded fund asset flows are anything to go by.

According to Markit’s ETF analytics, investors have taken profits off long focused funds while short and leveraged funds have attracted strong inflows. 
 
Funds which stand to gain from further increases gas prices have seen USD391m of outflows in the last four weeks, while funds which will benefit from a snap back in gas prices have attracted USD487m of new assets.
 
Investors have been most active in the leveraged market. Of the 38 funds which track natural gas prices, three and four times inverse funds have seen inflows representing twice their original AUM from the start of the year. 
 
The stand out fund is the Velocity Shares 3X Inverse Natural Gas fund which has seen USD250m of new assets. 
 
These positions have proved costly to maintain as gas prices continue to surge to new highs, a phenomenon best exemplified by the ETC Commerzbank-Natural Gas Future Daily Short-4X fund which has seen its AUM quadruple in the last month to USD915,000 despite seeing its price fall by 66 per cent. 
 
The increased gas prices have done much to lift the share prices of oil and gas producers. North American oil producing shares have seen their share prices retreat by two per cent on average over the last four weeks. While these returns are better than the five per cent fall in the greater market, they are no means indicative of a sustain rise in energy prices. 
 
Short sellers have also been fairly mooted in their reaction to the latest developments as the demand to borrow oil and gas producers has only increased marginally in the month to a slightly above average three per cent of shares outstanding across the 257 North American oil and gas producers. 
 
Former short favourite Chesapeake Energy currently sees demand to borrow stand at a two year low 5.1 per cent of shares outstanding after its share price having traded flat for the year.
 
Energy focused shorts have instead honed in on coal producing firms with the 36 coal and consumables firms seeing demand to borrow surge nearly 10 per cent in 2014. 
 
This increase in demand to borrow seems to have been well timed as heavily shorted Alpha Natural Resources and James River Coal both saw their share prices tumble in the wake of disappointing earnings announcements. 

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