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UNG a Winner, but XOP Disappointed Last Week

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Nov. 20 2020, Updated 4:35 p.m. ET

Different approaches to natural gas

Natural gas futures increased by ~1.77% between Friday, June 26, and Thursday, July 2. For retail investors, who don’t have easy access to the futures market, there are other, safer, low-cost avenues to bet on natural gas prices.

The first option is the United States Natural Gas Fund (UNG)—an ETF that tracks prompt natural gas futures. UNG shares trade on the NYSE, like a company stock. They gained 1.8% between June 26 and July 2.

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The second option is an ETF like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which holds many US energy companies. Many of these energy companies have exposure to natural gas prices via their upstream (gas production) operations. So, because of the indirect exposure to volatile natural gas prices, an ETF like XOP is a safer, more diversified option for more conservative investors. XOP lost 6.2% between June 26 and July 2.

Comparing performances

As we can see in the graph above, UNG was underperforming natural gas for almost the entire week, but towards the end of the week, it gave slightly higher returns.

XOP was underperforming both NG and UNG the entire week. It gave the lowest returns in the group towards the end of the week. UNG gave the highest returns in the group.

This is because XOP also includes companies with exposure to crude oil prices, which fell ~4.5% between June 26 and July 2. Follow our weekly recap of crude oil prices on our Energy and Power page.

XOP holds premier US gas producers like Noble Energy (NBL), Devon Energy (DVN), and Cabot Oil and Gas (COG). All these companies make up ~4% of the ETF.

Investors can also gain indirect exposure to energy prices, along with steady income, by investing in MLP ETFs such as the Alerian MLP ETF (AMLP), which holds midstream MLP companies like Enterprise Product Partners (EPD).

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