5 Natural Gas Exchange Traded Funds

Michael Teague  |

The U.S. Energy Department reported that natural gas supplies increased by 31 billion cubic feet last week, which, while shy of analyst expectations, marked the first storage increase of 2013. Meanwhile, unseasonably cold temperatures throughout the central United States are expected over the next two or so weeks. These two factors have much to do with why natural gas futures hit an intraday high of $4.335 per million BTU (British Thermal Units) on Thursday.

Furthermore, natural gas has been immune to the savage beating that most commodities have taken over the past week. This situation is due in part to the much heralded “energy revolution” that is currently just beginning in the United States, as large reserves of shale-based oil and natural gas are being sought and discovered all over the country.

But there is more to the story since, only a year ago, natural gas was at $1.85 per million BTU, making for an increase of some 122 percent.

Like other exchange traded funds, returns for natural gas ETFs are tied to the futures market rather than the spot-price of gas. As such, natural gas ETFs, such as the United States Natural Gas Fund (UNG), have been the realm mainly of short-term investors and traders. Recently, however, the situation has seen a significant reverse that for the time being is leaning more in favor of longer-term investors, as the 2013 price-increase for UNG has been closely trailing that of the increase in spot price.

The following are 5 natural gas ETFs

United States Natural Gas (UNG) – The fund’s purpose is to track changes in the spot-price performance of natural gas that is delivered through the Henry Hub in Louisiana after expenses, as measured by the near-month natural gas futures contract traded on the New York Mercantile Stock Exchange. UNG has gained just over 27 percent in 2013, and is up over 58.7 percent over the past year, currently trading at $23.86.

United States 12 Month Natural Gas (UNL) – UNL measures the spot price of natural gas from Louisana’s Henry hub, as measured by the near-month NYMEX contract as well as the contracts for the 11 consecutive following monthly contracts. The fund is up over 20 percent in 2013, and has gained over 32.5 percent over the past year, currently trading at $20.72.

iPath Dow Jones-UBS Natural Gas TR Sub-Idx ETN (GAZ) – The fund measures the price and yield performance of the Dow Jones-UBS Natural Gas Total Return Sub-Index before fees and expenses. The index encompasses the Henry Hub Natural Gas futures contract that is traded on the NYMEX. While GAZ is down nearly 19 percent over the past year, it is up over 21.5 percent in 2013, to $3.27.

First Trust ISE-Revere Natural Gas Idx (FCG) – The fund measures the price and yield prior to fees and expenses of ISE-REVERE Natural Gas. The equal-weighted index is composed of listed companies that generate most of their revenue from natural gas exploration and production. The fund’s holdings include, among others, Chesapeake Energy (CHK), Cabot Oil & Gas (COG), Noble Energy (NBL), and Goodrich Petroleum (GDO). The FCG is down 4 percent over the past year, but is up 0.9 percent in 2013.

Direxion Daily Nat Gas Rltd Bull 3X Shrs (GASL) & Direxion Daily Nat Gas Rltd Bear 3X Shrs (GASX) – The funds, respectively, measure 300 percent of performance and 300 percent of the inverse of the performance of the ISE-REVERE Natural Gas Index. GASL invests 80 percent of assets in long positions on securities and financial instruments that provide leveraged and unleveraged exposure to the index, and has lost over 30.5 percent over the last year and is down 3.25 percent in 2013, to $19.33. GASX does much the same, only for short positions, and is down nearly 34 percent over the past year, and over 14 percent in 2013, to $14.83.

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