Natural gas exchange-traded funds (ETFs) provide investors with exposure to natural gas prices while avoiding both the complexities of trading natural gas futures contracts and the storage costs of holding physical commodities. Natural gas is a commodity used as a source of energy for heating, cooking, fuel, and electricity generation. It also is used in the manufacture of plastics and other organic chemicals. The price of natural gas rises and falls according to fluctuations in supply and demand.

Natural gas futures prices have risen at a slower pace than the S&P 500 over the past year.
The three natural gas ETFs, ranked by one-year trailing total return, are UNL, UNG, and GAZ.
All three of these ETFs hold natural gas futures contracts to gain exposure to natural gas prices.

There are three natural gas ETFs that trade in the U.S., excluding inverse and leveraged ETFs. All three primarily gain exposure to natural gas prices through natural gas futures contracts and do not hold stocks of natural gas companies.

Natural gas futures prices, as measured by the Bloomberg Natural Gas Subindex, have risen at a slower pace than the broader market over the past 12 months, climbing 16.8% compared to the S&P 500’s total return of 36.2%, as of Aug. 5, 2021. The best performing natural gas ETF, based on performance over the past year, is the United States 12 Month Natural Gas Fund (UNL). We examine the three natural gas ETFs below. All numbers are as of Aug. 6, 2021.

ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs, which can negate some of your investment gains or increase your losses.

Performance over One-Year: 38.0%
Expense Ratio: 0.90%
Annual Dividend Yield: N/A
Three-Month Average Daily Volume: 16,272
Assets Under Management: $11.4 million
Inception Date: Nov. 18, 2009
Issuer: Concierge Technologies

UNL is structured as a commodity pool, a private investment structure that pools investor contributions and then trades futures and options in commodities on their behalf. The fund holds natural gas futures contracts in order to gain long exposure to natural gas prices and diversifies its holdings across multiple maturities to mitigate the adverse impact of contango. UNL may be appealing to investors as a hedge against inflation.

Performance over One-Year: 18.4%
Expense Ratio: 1.35%
Annual Dividend Yield: N/A
Three-Month Average Daily Volume: 2,227,166
Assets Under Management: $286.9 million
Inception Date: April 18, 2007
Issuer: Concierge Technologies

Like UNL, UNG is structured as a commodity pool and offers exposure to natural gas prices by holding natural gas futures contracts. Unlike UNL, however, this ETF is not as diversified, investing in futures contracts set to expire within the next month. This means the fund is more exposed to the adverse impacts of contango and more appropriate for traders with a short-term strategy. It may also be appealing as an inflation hedge.

Performance over One-Year: 18.4%
Expense Ratio: 0.45%
Annual Dividend Yield: N/A
Three-Month Average Daily Volume: 4,122
Assets Under Management: $6.5 million
Inception Date: March 8, 2017
Issuer: Barclays Capital

GAZ is structured as an exchange-traded note (ETN), a type of unsecured debt security that does not make interest payments and has stock-like characteristics. The fund provides exposure to natural gas prices through the holding of natural gas futures contracts. As an ETN, GAZ exposes investors to the credit risk of the issuer. Also, this ETN doesn’t generally move with changes in spot natural gas prices because the underlying index is comprised of futures contracts. It is designed for investors with a short-term investment horizon, rather than as part of a buy-and-hold strategy.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.


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