Natural gas prices jumped last week, hitting a 13-week high due to rising coal costs and soaring LNG shipments. President Biden has already committed to providing an extra 15 billion cubic meters of natural gas to the EU this year in the form of LNG exports. The spot gas prices were strengthened as cold, snowy conditions in the west were heading toward the east. NGI's Spot Gas National Average climbed to $6.525, up 16.0%.
As weather models turned a little warmer for next week, in addition to the bullish backdrop, Liquefied natural gas (LNG) feed gas deliveries recovered midweek. Moreover, according to EIA, U.S. dry natural gas production is projected to reach 97.5 Bcf/d by December 2022, a new record high.
Given this backdrop, we think it could be wise to bet on natural gas ETFs United States Natural Gas Fund LP (UNG) and United States 12 Month Natural Gas Fund LP (UNL), which are well-positioned to gain on rising natural gas prices.
United States Natural Gas Fund LP (UNG)
UNG offers exposure to natural gas and has the potential to be a great hedge against inflation. While natural gas may be appealing, UNG usually suffers from severe contango, making the product more appropriate for short-term traders. The fund has approximately $434.2 million in assets under management (AUM). Natural Gas Future May 20 is the top holding of UNG, with a 48.9% weighting, followed by Goldman Sachs FS Government Instl (FGTXX) and FidelityA Inv MM Fds Government Instl (FRGXX), with 8% and 6.9% weightings, respectively.
UNG has a 1.35% expense versus the 0.83% category average. The fund has gained 105% year-to-date and 100% over the past nine months.
Closing the last trading session at $25.60, the ETF is currently trading slightly below its 52-week high of $25.64. UNG's NAV stands at $23.31.
UNG's POWR Ratings reflect this promising outlook. The ETF has an overall A rating, which equates to Strong Buy in our proprietary rating system.
UNG has an A grade for Trade, Peer, and Buy & Hold. Among 117 ETFs in the Commodity ETFs group, UNG is ranked #22. To see more of UNG’s component grades, click here.
United States 12 Month Natural Gas Fund LP (UNL)
UNL has approximately $33.3 million in AUM. The ETF is primarily focused on natural gas. To offset the impact of contango, UNL diversifies across several maturities. The fund's major holdings include Natural Gas Future Jan21 with a 5.1% weighting, Natural Gas Future Feb21, and Future Contract on Natural Gas Future Dec20 with 4.6% and 4.5% weightings, respectively.
UNL has an expense ratio of 0.90%, which compares to the 0.83% category average. The ETF has gained 129.9% over the past nine months and 191.4% over the past year. Over the past six months, the ETF's net fund flows were $3.47 million.
Closing the last trading session at 23.31, the ETF is currently hovering near its 52-week high of $23.32. Its NAV stands at $21.10. The fund has a five-year monthly beta of 0.87, indicating less volatility than the broader market.
It is no surprise that UNL has an overall A rating, which translates to Strong Buy in our POWR Ratings system. It also has an A grade for Trade, Peer, and Buy & Hold component. In addition, it is currently ranked #48 of 117 ETFs in the Commodity ETFs group. To see more of UNL’s POWR Ratings, click here.
UNG shares rose $0.80 (+3.12%) in premarket trading Monday. Year-to-date, UNG has gained 111.85%, versus a -7.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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