Natural Gas ETFs: Time to Get Excited?


". . .historical relationship between the price of natural gas and oil is nearing record extremes"

Natural gas has a lot of factors in favor of the success of this commodity; the related exchange traded funds (ETFs) have made it easier to access it. Natural gas could someday be a hot commodity, especially since it can act as a hedge against the devaluation of the U.S. dollar, not to mention its appeal as we increasingly go green. Gary Gordon for ETF Expert explains that this clean energy alternative is valued around the globe, and it tends to go up when oil goes way up.

However, Gordon notes that United States Natural Gas (UNG) has been the laggard among commodity ETFs, down 38.8% year-to-date. Most other funds are positive for the year.

Last year, UNG was moving in tandem with First Trust Natural Gas (FCG), an ETF of companies that derive revenue from the exploration and production of natural gas. This year, not so much: FCG is up 23.9%. What gives? Gordon posits that either UNG and natural gas will eventually pick up, or the companies in FCG could begin to hurt.

Bespoke Investment says that getting excited about natural gas is hard, as its inventories are up 22% above their five-year average. Keep in mind that while the fundamentals aren't necessarily attractive, the historical relationship between the price of natural gas and oil is nearing record extremes.

Eventually natural gas outperforms oil, the trick is to wait for their ratios to fall around 18, Bespoke notes.

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