A Docile ETF For The Nat Gas Surge
Natural gas futures are volatile.
That much is widely known and that volatility explains the allure of an ETF such as the U.S. Natural Gas Fund (NYSE: UNG) for active, short-term traders. With natural gas futures soaring recently and getting another lift Tuesday after the U.S. National Weather Service issued a warmer-than-expected six-to-ten-day forecast for the eastern part of the U.S., UNG is again in the spotlight.
And with that comes traders embracing even more volatile fare such as the leveraged ProShares Ultra DJ-UBS Natural Gas (NYSE: BOIL), BOIL's bearish equivalent, the ProShares UltraShort DJ-UBS Natural Gas (NYSE: KOLD), and the VelocityShares 3x Long Natural Gas ETN (NYSE: UGAZ).
Those that want to take a more conservative to profiting from rising natural gas futures have options, too. One of the better choices is the First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG). As has been previously noted, FCG's name is somewhat deceiving because plenty of the ETF's holdings either have significant oil exposure or are working to boost their oil profiles.
Examples include top-10 holdings such as Apache (NYSE: APA) and Anadarko Petroleum (NYSE: APC). While FCG, home to 28 stocks, is an equity-based natural gas play that does not mean aggressive traders will be put to sleep by this ETF. The fund's three-year standard deviation is almost 460 basis points higher than the S&P 1500 Energy Index's and FCG has a beta of 1.41, according to First Trust data. A boring ETF this is not.
Still, FCG is perceived as being more docile than UNG. The trade-off is fair, however. FCG has over $$446.4 million in assets under management, but the fund can overlooked compared to other energy sector ETFs. The popularity trade off is worth making as well.
In the past month, FCG has surged 11.8 percent while UNG, despite a nice performance Tuesday, is lower by five percent. Even the Energy Select Sector SPDR (NYSE: XLE) has lagged FCG in the past month and that is with the benefit of a 10.5 percent pop for XLE.
What is also important about FCG's move high over the past three days is that the ETF has broken through resistance created by downtrend line that dates back to last September. The ETF now has an unencumbered path in front of it to rise the 5.8 percent necessary to return to its 52-week high around $18.70.
Bottom line: FCG is useful on multiple fronts. First, the ETF is solid option to UNG for risk-averse investors. Second, the ETF can be paired with a large-cap focused fund such as XLE so investors can have mid- and small-cap energy sector exposure as well.
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