Stock market

3 Natural Gas ETFs for Q2 2021

(investopedia.com) – By MATTHEW JOHNSTON Updated Feb 16, 2021

Natural gas exchange-traded funds (ETFs) provide investors with exposure to natural gas prices while avoiding both the complexities of trading natural gas futures contracts and the storage costs to hold the physical commodity. Natural gas is a commodity used as a source of energy for heating, cooking, fuel, and electricity generation. It also is used in the manufacture of plastics and other organic chemicals. The price of natural gas rises and falls according to fluctuations in supply and demand.

KEY TAKEAWAYS

  • Natural gas prices have risen at a faster pace than the S&P 500 over the past year.
  • The three natural gas ETFs, ranked by 1-year trailing total return, are UNL, GAZ, and UNG.
  • All three of these ETFs hold natural gas futures contracts to gain exposure to natural gas prices.

There are three natural gas ETFs that trade in the U.S., excluding inverse and leveraged ETFs. These are funds that hold natural gas as a commodity or commodity futures, not the stocks of natural gas companies. Natural gas prices have risen 64.8% over the past 12 months compared to the S&P 500’s total return of 18.9%, as of February 10, 2021.12 The best natural gas ETF, based on performance over the past year, is the United States 12 Month Natural Gas Fund (UNL). We examine the three natural gas ETFs below. The sole holding for each fund below is natural gas futures. All numbers below are as of February 11, 2021.3

ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs which can negate some of your investment gains or increase your losses.

United States 12 Month Natural Gas Fund (UNL)

  • Performance over 1-Year: 13.4%
  • Expense Ratio: 0.90%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 24,617
  • Assets Under Management: $7.9 million
  • Inception Date: November 18, 2009
  • Issuer: USCF

UNL is structured as a commodity pool, a private investment structure that pools investor contributions in order to trade futures and options in commodities. The fund holds natural gas futures contracts in order to gain long exposure to natural gas prices. It diversifies its holdings across multiple maturities to mitigate the adverse impact of contango. The ETF may be appealing to investors as a hedge against inflation.4

iPath Series B Bloomberg Natural Gas Subindex Total Return ETN (GAZ)

  • Performance over 1-Year: -19.3%
  • Expense Ratio: 0.45%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 6,202
  • Assets Under Management: $3.9 million
  • Inception Date: March 8, 2017
  • Issuer: Barclays Capital

GAZ is structured as an exchange-traded note (ETN), a type of unsecured debt security that does not make interest payments and has stock-like characteristics. The fund provides exposure to natural gas prices through the holding of natural gas futures contracts. As an ETN, GAZ exposes investors to the credit risk of the issuer. Also, this ETN doesn’t generally move with changes in spot natural gas prices because the underlying index is comprised of futures contracts. It is designed for investors with a short-term investment horizon, rather than as part of a buy-and-hold strategy.5

United States Natural Gas Fund (UNG)

  • Performance over 1-Year: -22.7%
  • Expense Ratio: 1.33%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 5,634,894
  • Assets Under Management: $354.4 million
  • Inception Date: April 18, 2007
  • Issuer: USCF

Like UNL, UNG is also structured as a commodity pool, offering exposure to natural gas prices by holding natural gas futures contracts. Unlike UNL, however, this ETF is not as diversified, investing in futures contracts set to expire within the next month.6 This means the fund is more exposed to the adverse impacts of contango and is thus more appropriate for traders with a short-term strategy. It may also be appealing as an inflation hedge.7

The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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