Since Feb. 2, 2010, UNG, the US Natural Gas ETF, has been redeeming shares. Finally! Commodity ETF are not appropriate for long-term investing, mostly because of the contango. When commodity prices are in contango, you have to pay a spread to roll your positions from the front month to the next contract. The stepper the contango, the higher the cost.
In the case of UNG, investors had to pay an exorbitant price, making it an almost certain losing proposition (cf. link). As the graph below shows, since Jan.2, 2009, the natural gas front month has lost 9.5% while UNG has lost… 60.5% !
Said differently, if perfectly correlated, UNG shares should be valued around $22, not $9.81. So finally investors woke up and started redeeming shares. Yesterday they sold the equivalent (in shares) of 1,360 lots of natural gas, which brought the total (since Feb 2nd) to more than 7,000 lots, or 9.3% of UNG shares:
It is something to follow as a continuation of this trend could have a serious effect on the natural gas curve. UNG still owns the equivalent of 45% of the NYMEX front month open interest !
Posted by Gael 
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