By Jason Simpkins
You don’t need to find the next Apple or make a risky options play to hit it big in the stock market.
You can do very well for yourself simply by taking advantage of exchange-traded funds (ETFs). These are baskets of equities designed to track a specific commodity, index, or sector. That makes them a little bit safer, and a lot more versatile, than traditional stocks.
And right now, the funds that are reeling off the biggest gains are natural gas ETFs.
Natural gas prices have doubled over the past year, shooting from $2 per thousand cubic feet (mcf) to their current level of about $4 per mcf. And there’s a very good chance they’ll jump even higher from here.
So is it any wonder that investment funds designed to track and leverage the price of natural gas have gone gangbusters?
Indeed, the highest profile natural gas ETFs have soared 27%, 48% and 82% in the past year, respectively.
So we’re going take a look at each one of these funds, as well as a couple of others, to further examine how you can profit using natural gas ETFs.
1. U.S. Natural Gas Fund (UNG)
The U.S. Natural Gas Fund (UNG) is, perhaps, the most straightforward natural gas ETF.
It uses a portfolio of near-month natural gas futures contracts to mimic the daily percentage change in the Henry Hub spot price.
Since April 2012, soaring gas prices have delivered the fund a 48% gain.
2. U.S. 12 Month Natural Gas Fund (UNL)
The U.S. 12 Month Natural Gas Fund (UNL) does the same thing as UNG, except it uses the average of the prices of 12 natural gas futures contracts – one for each month.
It’s up 27% since April 2012.
3. First Trust ISE Revere Natural Gas Fund (FCG)
The First Trust ISE Revere Natural Gas Index Fund (FCG) is a little bit different from the first two natural gas ETFs, as it seeks to mimic the price and yield of an the ISE REVERE Natural Gas Index.
The ISE REVERE Natural Gas Index tracks listed companies involved with the exploration and production of natural gas.
See the difference? UNL and UNG track gas prices, FCG tracks natural gas companies.
It’s up about 12% since April 2012.
4. VelocityShares 3X Long Natural Gas ETN (UGAZ)
The VelocityShares 3X Long Natural Gas ETN (UGAZ) is like UNG on steroids. It uses leverage to replicate the performance of the S&P GSCI Natural Gas Index three times over. That means the fund trades natural gas futures contracts – not equities.
Because of its leverage, UGAZ is up 82%.
5. VelocityShares 3X Short Natural Gas ETN (DGAZ)
The VelocityShares 3X Short Natural Gas ETN (DGAZ) does the exact opposite. It goes up when natural gas prices go down. That gives you the ability to short natural gas without using risky options.
You can also use the fund to hedge your bullish bets. That is, you might put most of your investment in UNG, and then a smaller amount in DGAZ. That way you could benefit regardless of which way the price moves.
With natural gas prices soaring, DGAZ is down 85% since April 2012.
So there you have it. These are the most widely held and frequently used natural gas ETFs on the market.
About Jason Simpkins
Jason Simpkins brings an impressive and diverse background to his position as Editor-in-Chief of Oil & Energy Daily. Before assuming the role, Jason spent six years working as a financial reporter and analyst for a leading business and investment publication. While there, he covered stories in numerous sectors and industries, but he specializes in the critical global energy markets.
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