USO versus UNG
From December 22–29, 2016, the United States Natural Gas ETF (UNG) outperformed the United States Oil ETF (USO). USO rose ~2.3% and UNG rose ~7%. Read Part 1 in this series for more on the impact of crude oil prices.
UNG ended December 29, 2016, with a fall of ~1.3%. The U.S. Energy Information Administration announced that natural gas (FCG) inventories fell by 237 Bcf (billion cubic feet). Earlier, analysts’ forecast indicated a fall of 219 Bcf. The fall in UNG corresponds to higher temperature forecasts.
Analyzing UNG’s performance
On March 3, 2016, natural gas active futures hit a 17-year low. UNG rose ~64.1% from March 3–December 29, 2016. During that period, natural gas active futures rose 131.8%.
From June 20, 2014, to December 29, 2016, UNG fell ~62.4%, while natural gas active futures fell 16.1%. The nearly two-year downturn in crude oil prices started from its peak on June 20, 2014.
The above numbers show UNG’s lower returns compared to natural gas active futures. The lower returns are due to the small losses that UNG suffered when rolling its exposure to natural gas active futures. The futures were higher in price than the expiring futures contracts in the fund.
Read Are Energy Commodity ETFs Outperforming Energy Commodities? to learn more about USO’s performance.
Energy sector exposure
For exposure to the energy sector, you might want to look at energy ETFs that invest in oil and gas stocks. They could be alternatives to ETFs that offer direct exposure to energy prices such as USO and UNG. These energy ETFs include the following:
- Energy Select Sector SPDR ETF (XLE)
- PowerShares DWA Energy Momentum ETF (PXI)
- Vanguard Energy ETF (VDE)
- iShares US Energy ETF (IYE)
- Fidelity MSCI Energy ETF (FENY)
- SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
In the next part, we’ll look at XLE’s performance compared to other SPDR ETFs.