Different approaches to natural gas
As we saw in the previous part of this series, natural gas prices fell by ~5.1% between Friday, September 25, and Thursday, October 1, 2015. 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. But, notably, UNG fell by 7.53% between September 25 and October 1.
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. For example, XOP only fell by 0.51% between September 25 and October 1.
As you can see in the above graph, UNG mirrored natural gas prices at first, but then it gave poorer returns at the end of the weekly cycle shown.
XOP, on the other hand, was underperforming both natural gas and UNG initially, but then it rose mid-week, giving the highest returns among the group on October 1.
You can also gain indirect exposure to energy prices and steady income by investing in MLP (master limited partnership) ETFs such as the Alerian MLP ETF (AMLP), which has holdings in large US midstream MLP companies like Enterprise Products Partners (EPD).
In the next part of this series, we’ll continue to analyze natural gas production and look at some forecasts.