3 Natural Gas ETFs to Buy on the Dip
Natural gas prices have soared to record highs this year due to a global energy crunch. Furthermore, because the EIA anticipates prices will remain high, at least through year’s end...
Natural gas prices have soared to record highs this year due to a global energy crunch. Furthermore, because the EIA anticipates prices will remain high, at least through year’s end amid below-average inventories and rebounding demand, natural gas ETFs should benefit. We believe natural gas ETFs United States Natural Gas (UNG), United States 12 Month Natural Gas (UNL), and iPath Series B Bloomberg Natural Gas (GAZ), which have dipped in price lately, could be wise bets to capitalize on the favorable industry trends. Let’s discuss the funds.
Natural gas prices are hovering near record high levels due to rebounding demand amid the global economy’s reopening. Below five-year average inventory levels are driving prices higher. In addition, U.S. gas futures recently touched 12-year highs. Gas futures rallied to hit $6.280 in September, more than twice the $3.0141 seasonally-adjusted 10-year average.
Because the winter season is nearing, demand for liquefied natural gas (LNG) is also rising. U.S. exports of LNG are approaching a record high this year, and Energy Information Administration (EIA) anticipates new record high exports for next year. Moreover, the organization expects the winter heating season will face natural gas inventories that are 4.8% below the five-year average, which will contribute to U.S. natural gas prices remaining high through the winter.
We think natural gas ETFs, United States Natural Gas Fund LP (UNG), United States 12 Month Natural Gas Fund LP (UNL), and iPath Series B Bloomberg Natural Gas Subindex Total ReturnSM ETN (GAZ) are well-positioned to benefit from this solid backdrop. So, it could be wise to buy the recent dips in these ETFs.
United States Natural Gas Fund, LP (UNG)
UNG offers exposure to natural gas and potentially has appeal as an inflation hedge. The fund is appropriate for short-term traders. UNG has approximately $474.60 million in assets under management (AUM). It has a beta of 1.18.
Future Contract on Natural Gas Future May 20 is the top holding of UNG, with a 48.9% weighting, followed by Goldman Sachs FS Government Instl (FGTXX) and FidelityA Inv MM Fds Government Instl (FRGXX), with 8% and 6.9% weightings, respectively. The fund’s net inflow was $181.55 million over the past month.
UNG has a 1.28% expense ratio, versus the 0.79% category average. The ETF has gained 100% year-to-date. However, it has slumped 2.4% over the past five days to close the last trading session at $18.38. It is currently trading 16.8% lower than its 52-week high of $22.10. The fund has a NAV of 13.50.
UNG’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our proprietary rating system. It also has a B grade for Trade. Among the 114 ETFs in the A-rated Commodity ETFs group, UNG is ranked #64.
To view additional UNG ratings for Buy & Hold and Peer, click here.
United States 12 Month Natural Gas Fund, LP (UNL)
UNL is focused mainly on natural gas, one of America’s most important commodities that can potentially hedge against inflation. Furthermore, UNL diversifies across multiple maturities to mitigate the impact of contango. In addition, it has a 0.42 beta, indicating the fund’s stability compared to the broader market. It has approximately $16.70 million in AUM.
The fund’s major holdings include Future Contract on Natural Gas Future Jan21, Natural Gas Future Feb21, and Future Contract on Natural Gas Future Dec20, with weights of 5.1%, 4.6%, and 4.5%, respectively. Over the past month, the ETF’s net fund flows were $1.45 million.
UNL has a 0.90% expense ratio, compared with a 0.79% category average The ETF has gained 86.7% year-to-date. However, it has slumped 1.8% over the past five days. It is currently trading at $14.17, which is 8.9% lower than its 52-week high of $15.55.
It’s no surprise that UNL has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In addition, it has an A grade for Trade, and a B grade for Buy & Hold. It is ranked #75 in the same group.
Click here to view additional UNL ratings for Peer.
iPath Series B Bloomberg Natural Gas Subindex Total ReturnSM ETN (GAZ)
Gaz has approximately $15.1 million in AUM. The fund is suitable for investors looking for exposure in natural gas prices through futures contracts. GAZ is an ETN and is mainly appropriate for short-term trading. It has a beta of 1.03, and its one-month net flows stood at $7.52 million.
GAZ has a 0.45% expense ratio compared with the 0.79% category average. Over the past six months, GAZ gained 80.6% to close its last trading session at $28.52. However, it has dipped 1.8% over the past five days. It is currently trading 15.9% lower than its 52-week high of $33.93. The fund has a NAV of 20.94.
GAZ’s POWR Ratings are consistent with its promising outlook. It has an overall B rating, translating to Buy in our proprietary rating system. It also has a B grade for Trade. GAZ is ranked #76 in the Commodity ETFs group.
Get additional GAZ ratings for Buy & Hold and Peer here.
UNG shares were trading at $19.81 per share on Monday morning, up $1.43 (+7.78%). Year-to-date, UNG has gained 115.33%, versus a 22.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.