UBS Investment Bank announced (pdf) the launch of two new exchange-traded notes (ETNs) last week (6/16/11) designed to “take advantage of potential contango in the oil and natural gas markets.” The UBS ETRACS Natural Gas Futures Contango ETN (GASZ) and UBS ETRACS Oil Futures Contango ETN (OILZ) will attempt to capitalize on contango in oil and natural gas futures markets, while minimizing the exposure to absolute changes in the underlying prices of these commodities.

The underlying indexes were launched only two days prior to the ETNs on 6/14, and according to UBS “each Index has a limited performance history, and it is uncertain how the Index will perform in the future.” UBS did not supply any information or links as to how the indexes might have hypothetically performed in the past either.

UBS ETRACS Natural Gas Futures Contango ETN (GASZ) will track the ISE Natural Gas Futures Spread Index and is designed to capitalize on natural gas markets in a state of contango while minimizing the exposure to absolute changes in futures prices. The natural gas spread provides short (inverse) exposure to front month contracts and long exposure to mid-term contracts using equally weighted positions, effectively creating a 1:1 long/short ratio. Additional information is located on the overview page and in the GASZ fact sheet (pdf).

UBS ETRACS Oil Futures Contango ETN (OILZ) will track the ISE Oil Futures Spread Index and is designed to capitalize on oil markets in a state of contango while minimizing the exposure to absolute changes in oil futures prices. The oil spread provides 150% long exposure to mid-term contracts offset with a 100% short (inverse) position in front month contracts, creating a 1.5:1 long/short ratio. Additional information is located on the overview page and in the OILZ fact sheet (pdf).

The two new ETNs share a combined prospectus (pdf) and will carry investor fees of 0.85% per annum. Being exchange-traded “notes” instead of “funds” also implies they will carry the credit risk of UBS.

UBS introduced a similar spread product based on volatility futures back in December 2010. The UBS ETRACS Daily Long-Short VIX ETN (XVIX) tracks the S&P 500 VIX Futures Term-Structure Index ER, which measures the return from taking a 100% long position in the Mid-Term Index and a 50% short, or inverse, position in the Short-Term Index. Unfortunately, XVIX has not lived up to my expectations and is currently showing a loss since its inception.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.