UNG and XOP Fell in the Week Ending August 28



Different approaches to natural gas

As we discussed in the previous part of this series, natural gas rose ~0.37% between Friday, August 28, and Thursday, September 2. 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 fell 0.16% between August 28 and September 2.

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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 could be a safer, more diversified option for more conservative investors. XOP fell by ~0.75% between August 28 and September 2.

Comparing performances

As you can see in the above graph, UNG underperformed natural gas prices throughout the week.

XOP, on the other hand, was overperforming both natural gas and UNG initially in the week, but it plunged towards the middle of the week, and then rose again, as the graph above shows. It was still lower than natural gas prices and UNG. It gave the lowest returns in the group at the end of the week. The mid-week plunge was triggered by a sharp drop in crude oil prices, which fell ~7.7% on September 2. Many upstream companies that XOP holds also have exposure to crude oil prices.

Follow our weekly analysis of crude oil price movements at Market Realist’s Energy & Power page. Read the latest report at US Crude Oil Back above $40: What Drove the Turnaround?

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 the ETF.

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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