The manager of the giant US Natural Gas Fund (UNG) is responding to an uncertain regulatory environment by exploring new ways to gain exposure to the commodity according to an interview with the Wall Street Journal.

In the interview, US Commodity Funds Chief investment Officer John Hyland outlined the steps his team is taking to position the ETF for future growth.  UNG stopped accepting new investment after investors poured nearly $4 billion into the fund between March and July causing the ETF to run out of shares.

UNG was required to appeal to regulators for permission to expand and received a green light this week from the SEC.  However, the cloud of uncertainty raised by recent Commodity Futures Trading Commission (CFTC) hearings caused UNG to decide to hold off on issuing new units for now.

The CFTC, seeking to “crack down on speculation” in the commodities markets, held hearings earlier this month to explore if caps should be put in place on futures contracts.  Those securities are the main investment vehicle for Mr. Hyland’s fund with some experts estimating that UNG now controls 30% of all outstanding natural-gas futures contracts.

Any new limits imposed by the CFTC are unlikely to be ineffective and will likely cause investors to seek alternatives to the large US futures markets such as the Chicago Mercantile Exchange (CME) andIntercontinental Exchange.  UNG already has 5% of its assets in unregulated over-the-counter swap agreements, in which the fund enters an agreement with a counterparty that yields a return in line with natural gas prices.  Offshore exchanges would also welcome the opportunity to take market share from the CME.

According to the interview, Mr. Hyland stated that the fund may also invest in other commodities such as crude oil, heating oil or gasoline.  Another alternative is to return cash to investors.

See the ETF Directory for a complete list of commodity exchange traded funds and see the special report,Investing in Natural Gas with ETFs for more insight.