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Which ETF Is The Best Natural Gas Play This Winter Season?

December 13th, 2009

naturalgasmoney“The future for natural-gas prices remains bearish in my view, but there’s no denying the fuel’s recent rally, or the short-term investment opportunities for those of a more bullish mindset. If natural-gas prices stay strong, the newer U.S. 12 Month Natural Gas Fund (UNL) is a better bet than the U.S. Natural Gas Fund (UNG). But if you want to hedge your bets, the First Trust ISE-Revere Natural Gas Fund (FCG), which has tracked oil equipment and exploration ETFs more closely than the price of natural gas, would likely benefit if both oil and natural-gas prices increase,” Don Dion Reports From The Street.

“The recent rise in natural-gas prices is largely thanks to early winter weather in parts of the U.S., which caused inventory to dip for the first time in nine months. While some may see this as strong evidence of a resurgence for natural gas and UNG, the supply/demand imbalance continues to make me cautious. In any case, UNL has outperformed UNG throughout the rally and will likely continue to do so if the jump continues,” Dion Reports.

“Where winter heating costs are concerned, oil prices may benefit as much as natural gas, a scenario that would make (FCG) the best play. I have often promoted FCG as an alternative to the damaged (UNG), but rather than following the recent natural-gas rally, FCG appears to be mimicking the performance of oil and oil explorer funds, with UNG price movements nudging it up or down within that group. In this scenario, FCG will outperform the other instruments it has been trending with, including the iShares Dow Jones U.S. Oil Equipment Fund (IEZ), due to its stronger exposure to natural gas,” Dion Reports.


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Here is a detailed look at the ETF’s mentioned:

The investment objective of the “United States 12 Month Natural Gas Fund” (UNL) is to have the changes in percentage terms of its units’ net asset value (“NAV”) reflect the changes in percentage terms of the spot price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the average of the prices of 12 futures contracts on natural gas traded on the NYMEX (the “Benchmark Futures Contracts”), consisting of the near month contract to expire and the contracts for the following eleven months, for a total of 12 consecutive months’ contracts, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contracts that are the next month contract to expire and the contracts for the following eleven consecutive months, less the “United States 12 Month Natural Gas Fund” expenses.

Chart for UNITED STATES 12 MON (UNL)

The investment (UNG) seeks to replicate the performance, net of expenses, of natural gas. The trust will invest in futures contracts on natural gas traded on the NYMEX that is the near month contract to expire. It is nondiversified.

TOP 10 HOLDINGS (UNG) ( 81.02% OF TOTAL ASSETS)  
 
Company Symbol % Assets
F/C Natural Gas Futr Nov09 N/A 19.1
F/C Natural Gas Futr Nov09 Ice N/A 16.8
F/C Natural Gas Swap Nov09 N/A 8.64
Fidelity Instl MM Fds Government I N/A 12.08
Goldman Sachs FS Government Sel N/A 11.38
Morgan Stanley Inst Liquidity Gov Inst N/A 2.07
Tr Swap Ng Commodity Index Long N/A 3.13
Usng Comm Swap 2/26/10 Long N/A 7.82

Chart for United States Natural Gas (UNG)

The investment (FCG) seeks to replicate, net of expenses, the ISE-REVERE Natural Gas index. The fund invests at least 90% of assets in common stocks that comprise the index. The index is an equal-weighted index that consists of exchange-listed companies that derive a substantial portion of their revenue from the exploration and production of natural gas. The fund is nondiversified.

TOP 10 HOLDINGS (FCG) ( 36.82% OF TOTAL ASSETS)  
 
Company Symbol % Assets
ANADARKO PETROLEUM (APC) 3.46
CABOT OIL GAS CP (COG) 3.44
CHEVRON CORP (CVX) 3.6
EOG RESOURCES INC (EOG) 3.58
FOREST OIL CP (NEW) (FST) 3.72
Linn Energy, LLC (LINE) 3.59
PETROQUEST ENERGY (PQ) 4.09
PIONEER NATURAL RES (PXD) 4.13
QUESTAR CP (STR) 3.72
SOUTHWESTERN ENERGY (SWN) 3.49

Chart for First Trust ISE-Revere Natural Gas (FCG)

The investment (IEZ) seeks results that correspond generally to the price and yield performance of the Dow Jones U.S. Select Oil Equipment & Services index. The fund generally invests at least 90% of assets in securities of the Underlying index and depositary receipts representing securities of the Underlying index. It may invest the remainder of assets in securities not included in its Underlying index but which BGFA believes will help the fund track Underlying index, and in futures contracts, options on futures contracts, options and swaps as well as cash and cash equivalents, including shares of money market funds advised by BGFA. It is nondiversified.

TOP 10 HOLDINGS (IEZ) ( 67.75% OF TOTAL ASSETS)  
 
Company Symbol % Assets
BAKER HUGHES INTL (BHI) 5.86
CAMERON INTL CP (CAM) 4.59
DIAMOND OFFSHORE DRL (DO) 3.43
ENSCO INTL INC (ESV) 3.35
FMC TECHNOLOGIES INC (FTI) 3.54
HALLIBURTON CO (HAL) 10.54
NABORS INDS INC NEW (NBR) 3.17
NATL OILWELL VARCO (NOV) 7.76
SCHLUMBERGER LTD (SLB) 22.37
SMITH INTL INC (SII) 3.14

Chart for iShares Dow Jones US Oil Equipment Index (IEZ)

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NYSE:FCG, NYSE:IEZ, NYSE:UNG, NYSE:UNL


 

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