Mixed Performance for Natural Gas ETFs in Week Ended October 29


Nov. 20 2020, Updated 12:03 p.m. ET

Different approaches to natural gas

As we saw in the previous part of this series, natural gas prices fell by ~1.3% between Friday, October 23, and Thursday, October 29, 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 natural gas futures. This ETF trades on the New York Stock Exchange like company stock. It fell by 9.7% between October 23 and October 29, 2015.

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 its indirect exposure to volatile natural gas prices, an ETF such as XOP could be a safer, more diversified option for more conservative investors. It fell ~1.1% between October 23 and October 29, 2015.

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Comparing performances

As you can see in the above graph, UNG was overperforming natural gas prices throughout the week, but it gave lower returns at the end of the weekly cycle.

XOP, on the other hand, was mostly overperforming both natural gas and UNG throughout the week, but it gave better returns than UNG and returns similar to natural gas prices, which significantly recovered towards the end of the week, as the graph above notes.

The reason for XOP’s better performance could be crude oil prices, which rose ~3.3% between October 23 and October 29. XOP holds many companies that have exposure to crude oil prices.

XOP includes US natural gas producers such as Noble Energy (NBL), Antero Resources (AR), and PDC Energy (PDCE) in its portfolio. Combined, these companies make up ~2% of XOP.

You can also gain indirect exposure to energy prices by investing in MLP ETFs such as the Alerian MLP ETF (AMLP), which has holdings in large US midstream MLP companies such as Enterprise Products Partners (EPD). In the next part of this series, we’ll continue to analyze natural gas production and look at some forecasts.


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