Different approaches to natural gas
Natural gas rose 3.57% between Friday, July 31, and Thursday, August 6. For retail investors who don’t have easy access to the futures market, there are other safer, low-cost avenues for betting on natural gas prices.
One avenue is the United States Natural Gas Fund (UNG), an ETF that tracks prompt natural gas futures. UNG shares trade on the New York Stock Exchange like company stock. UNG rose 3.22% between July 31 and August 6.
Another avenue is the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which holds many US energy companies in its portfolio. Some of these energy companies have exposure to natural gas prices through their upstream gas production operations. 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 remained almost flat last week, rising just 0.05% between July 31 and August 6.
As you can see in the above graph, UNG mirrored natural gas prices early in the week, but then it slightly underperformed natural gas prices as the rest of the week ended August 6 progressed.
XOP underperformed both natural gas and UNG throughout the week. XOP returned the least of the group toward the end of the week. XOP’s performance was affected by crude oil prices, which fell ~5.22% between July 31 and August 6. You can follow our weekly crude oil price recaps on Market Realist’s Energy and Power page.
XOP includes US natural gas producers such as Noble Energy (NBL), Devon Energy (DVN), and Antero Resources (AR) in its portfolio. Combined, these companies make up 2.4% of the ETF. NBL fell 3.74% between July 31 and August 6, and DVN fell ~2.26%. In the same period, AR fell by 3.67%.
You can also gain indirect exposure to energy prices and steady income by investing in MLP ETFs such as the Alerian MLP ETF (AMLP), which holds large US midstream MLP companies such as Enterprise Products Partners (EPD).