BOIL ETF stock: An expensive way to lose your money

The ProShares Ultra Bloomberg Natural Gas (BOIL) ETF has been a bad performer over the years. It has crashed by over 95% in the past 12 months and by 99.9% since inception. It has severely lagged the performance of natural gas and other energy ETFs.

What is the ProShares Ultra Bloomberg Natural gas ETF?

The BOIL ETF is a leveraged fund that aims to get daily investment results that are double those of the underlying benchmark. In short, the ETF rises two times when the price of natural gas rises by 1%. Equally, it drops two times when natural gas prices slips by 1%.

The implication of the BOIL ETF is that, in the long term, it has little to no correlation with the prices of natural gas. For example, while the fund has dropped by over 90% this year, the United States Natural Gas Fund (UNG) has fallen by over 80%. The fund has also underperformed gas in the past five years.

The BOIL ETF has additional risks. One of the biggest ones is known as slippage, which happens when the actual performance of the fund does not match its expected returns. This slippage can lead to weak performance even if the price of natural gas stays intact.

Further, the BOIL ETF is not cheap as it comes with an expense ratio of 1.24%. This is a huge expense considering that most popular funds like the SPDR S&P 500 ETF (SPY) and Invesco QQQ ETF (QQQ) have a ratio of 0.09% and 0.20%, respectively. 

A 1.24% ratio means that you will have to pay $124 in fees a year if you have a $10,000 account and the ETF goes nowhere. Therefore, with this fund, you are basically paying higher fees to generate mediocre returns.

BOIL ETF vs natural gas price

Natural gas price outlook

If you are interested in natural gas, going the old-school way of investing in futures is a good way to start. The other option is to invest in ETFs that track natural gas like UNG and First Trust Natural Gas ETF (FCG).

Also, you have the option of investing in natural gas companies like Antero Resources, Range Resources, Matador Resources, and Chord Energy. These companies tend to do well when natural gas price is rising. 

Looking forward, natural gas price has risen by over 40% from its lowest level this year. It still remains sharply lower than its 2022 highs that happened when Russia invaded Ukraine. 

This performance is because the world is awash with natural gas, helped by abundant supplies from the United States, Russia, and Qatar. In a statement last week, Gazprom said that its gas exports to China had jumped to a record high. Russia hopes to export 30 billion cubic meters of gas to China in 2024 and 38 bcm per year later on.

Gas has also dropped because European countries have enough in storage even as the bloc expects a colder winter. Therefore, there is a likelihood that natural gas prices will remain under pressure this year.