Shouldn't the Natural Gas Commodity ETF Catch Up to Its Company Cousin?

Includes: DBA, DBB, DBP, FCG, UNG, USO
by: Gary Gordon

World events appear to be falling in line for natural gas. It's a clean energy alternative in an era where "Government Motors" is being asked to think efficient. It's a commodity that most countries value immensely. It could serve as yet another hedge against dollar devaluation. And, it tends to take off when oil gets too big for its britches.

Yet, no commodity ETF has been more disappointing in 2009. With the Powershares DB Agriculture Fund (NYSEARCA:DBA) up 7% YTD, PowerShares Precious Metals (NYSEARCA:DBP) up 12%, Base Metals (NYSEARCA:DBB) up 27% and gasoline in the United State Gasoline Fund (NYSEARCA:USO) up a startling 70%, could anyone have expected United States Natural Gas (NYSEARCA:UNG) to post -37% loss YTD?

Perhaps the more intriguing story, however, is the collective performance of the companies in the First Trust Natural Gas Fund (NYSEARCA:FCG). Ultra-compelling valuations on beaten down nat gas producers/explorers have helped to push FCG 24% higher in 2009.

Fcg ung 2009 YTD

The short-term pattern hardly makes sense in the context of the bigger picture. For example, take the last year of the commodity bubble, just before the bust. The First Trust Natural Gas Fund (FCG) and the United States Natural Gas (UNG) moved in tandem.

Ung versus fcg in 2009

It follows that there are only a few conclusions that one might draw. Natural gas, via the commodity ETF (UNG), will eventually garner interest. UNG did rise 11% in May. What's more, the crude oil/natural gas ratio is higher than it's been since 1991.

Either that... or the companies that generate most of their revenue from natural gas exploration/production will fall flat. And that's putting it nicely. If natural gas doesn't see a substantial pick-up in demand, FCG would likely find itself flat-out falling.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.