New Energy Investments: Consider Natural Gas ETF UNG

Quite predictably, crude oil has been on a roll in recent weeks as the summer driving season has driven seasonally strong performance. With oil trading around $75 per barrel, fresh money investments into the energy sector might not be ideal at these prices. Don't get me wrong, I am still bullish on oil in general, but investors should not jump on the energy bandwagon with new money when we are in the middle of peak oil season.

For new money right now, I would suggest investors take a look at natural gas. In fact, in mid April a new ETF was formed to track natural gas prices. Even while oil has soared from the low 60's to the mid 70's, natural gas has collapsed from more than $8 to below $6. Another non-existent hurricane season has contributed to the drop, but natural gas prices will remain volatile in the future, and given the weakness lately, it appears to be an attractive entry point.

The natural gas ETF, UNITED STATES NATL GAS FUND, trades under the symbol (UNG) and has plummeted from above $54 to $38 in the last couple of months, as you can see from the chart below. After a 30 percent drop, I think it looks attractive for investors looking to add some energy exposure but are wary of buying crude oil stocks at current prices. You can also play this via unhedged natural gas producers, but since this ETF is new, I figured I would point it out as another potential investment vehicle in the space.

Disclosure: Author has no position in UNG at the time of writing.

Comments

[SHermanMcCoy]

You're making a big mistake. Gas is cheap, no doubt, but this IS NOT THE WAY tp play it. The embedded contango costs in UMG will cost a fortune as the trust rolls its futures positions forward each month.. The roll in NAT Gas can be several percentage points a month, especially when an AMaranth-like hedge fund is shorting the front month contracts. Shorts make money on the roll, and longs take it up the butt. I'm speaking from personal experience. See how much USO has underperformed Crude futures for a related market example.

If you want to own Nat Gas, buy the deferred futures, or an equity leveraged to prices like CHK or XEC, or even a Royalty trust. You got the right idea, you're just riding the wrong horse.