UNG Mirrors Natural Gas as XOP Disappoints This Week


Nov. 20 2020, Updated 3:58 p.m. ET

Different approaches to natural gas

As we saw in the previous part of this series, natural gas fell ~0.54% between Friday, September 18, and Thursday, September 24. 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 ETF (UNG), which tracks prompt natural gas futures. UNG shares trade on the New York Stock Exchange like company stock. UNG fell just 0.41% between September 18 and September 24.

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 natural gas production operations.

Because of the indirect exposure to volatile natural gas prices, an ETF like XOP could be a safer, more diversified option for more conservative investors. However, XOP fell 3.59% between September 18 and September 24.

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Comparing performances

As you can see in the above graph, UNG mirrored natural gas prices for most of the week and gave slightly better returns at the end of our weekly cycle.

XOP, on the other hand, was overperforming natural gas initially in the week but plunged mid-week, mirroring crude oil prices, which fell ~3% on September 23. XOP underperformed both UNG and natural gas prices as the week progressed. It gave the lowest returns among the group at the end of the week.

Companies held in XOP’s portfolio also have exposure to crude oil prices because of their upstream operations.

You can follow our weekly analysis of crude oil price movements at Market Realist’s Energy and Power page.

XOP includes US natural gas producers such as Noble Energy (NBL), Rice Energy (RICE), and PDC Energy (PDCE) in its portfolio. Combined, these companies make up 2.4% of XOP.

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).


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