Which Natural Gas ETF Is Right For You? UNG Vs. GASZ Vs. GAZ

Includes: GASZ, GAZ, UNG
by: CommodityHQ

By Daniela Pylypczak

Although natural gas is arguably one of the most frustrating commodities on the market, trading the fossil fuel has surged in popularity in recent years. Natural gas’ inherent volatility, combined with its healthy trading volume has made it quite an enticing investment tool for those investors looking for potentially lucrative returns. Natural gas is also known for being “greener” than its other fossil fuel cousins, like coal and oil, since it is relatively cleaner and produces less greenhouse gas emissions. And thanks to the rapid development of the exchange-traded fund industry, investors now have several ways to gain access to one of the most popular commodities.

Below, we outline the three most popular natural gas ETFs and which one will fit your investment objectives.

United States Natural Gas Fund (NYSEARCA:UNG)

Quick Stats (9/27/2012)

There is perhaps no natural gas ETF more popular than U.S. Commodity Funds’ UNG. With just under $1.1 billion in total assets under management, this ETF is by far the largest to invest in natural gas: UNG’s portfolio is more than 15x larger than the next biggest competitor. In addition to its sheer size, the fund’s appeal comes from being one of the most liquid ETFs available on the market, trading over 10 million shares a day on average. Since UNG is comprised of natural gas futures contracts, however, it frequently exhibits high levels of volatility, as the commodity is known to make major swings in as little time as an hour.

UNG is right for you if: You are an active trader seeking to either speculate on natural gas’ movements or quickly execute positions in the commodity.

E-TRACS Natural Gas Futures Contango ETN (NYSEARCA:GASZ)

Quick Stats (9/27/2012)

GASZ, which made its debut in 2011, was one of the first “Contango” exchange-traded products to hit the markets, providing investors with yet another way to make a play on natural gas futures. The fund’s methodology to prevent the adverse affects of contango is quite simple: GASZ includes a short position in an index comprised of short-term futures contracts, while at the same time maintaining a long position in longer-dated futures. This combination means that the fund will generally exhibit significantly lower volatility than other funds, and that it might also allow investors to actually benefit from contango. It is important to note, however, that GASZ is an exchange-traded note, which will expose its holders to the potential credit risk of the issuing institution.

GASZ is right for you if: You are an investor seeking to gain exposure to natural gas futures, but want a methodology that can help avoid the adverse effects of contango.

DJ-UBS Natural Gas Subindex Total Return ETN (NYSEARCA:GAZ)

Quick Stats (9/27/2012)

GAZ is another popular natural gas ETF, offering exposure to natural gas prices through the futures market. Similar to UNG, GAZ invests in near-dated futures contracts traded on the NYMEX, making the correlation between the two products nearly perfect. Unlike UNG however, GAZ is structured as an ETN, meaning that there will be lower tracking error, though investors will be exposed to the credit risk of the issuing institution. Despite the slight drawback, the fund has accumulated over $45 million in total assets since its inception in 2007. GAZ also maintains a relatively healthy trading volume, with over 76,000 shares exchanging hands on an average trading day.

GAZ is right for you if: You are an investor looking to achieve natural gas exposure, but prefer the exchange-traded note structure.

Original Post

Disclosure: No positions at time of writing.

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