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

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’s 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 [for more natural gas news  and analysis subscribe to our free newsletter].

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

United States Natural Gas Fund (UNG)

Quick Stats (9/27/2012)

There is perhaps no natural gas ETF more popular than US Commodity Funds’ UNG. With just under $1.1 billion in total assets under managements, 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 [see also The Rise and Demise of UNG].

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

E-TRACS Natural Gas Futures Contango ETN (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 positing 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 (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 [see also Four Little Known Factors Driving The Price Of Natural Gas].

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

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Disclosure: No positions at time of writing.

About Daniela Pylypczak

Daniela Pylypczak-Wasylyszyn is a regular contributor to CommodityHQ.com, where she primarily focuses on commodity producers equities. She is also an analyst for ETFdb.com, where she contributes articles and analysis each week. Since joining the team in 2011, Daniela has quickly grown to be one of the most widely-followed authors in the industry. Her articles are syndicated in a number of online publications, including Financial Advisor Magazine, Fidelity.com, and Yahoo! Finance. Daniela is also a contributor for TraderHQ.com and Dividend.com. Daniela graduated from DePaul University with a bachelor’s degree in finance and economics.
This entry was posted in Asset Allocation, Commodity ETF Analysis, Commodity ETFs, Energy, Natural Gas and tagged , , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

4 Responses to “Which Natural Gas ETF Is Right For You? UNG vs. GASZ vs. GAZ”

  1. [...]  E-TRACS Natural Gas Futures Contango ETN (GASZ): This is an ETN that does not get nearly the attention it deserves. The fund has a unique strategy that goes long in longer dated contracts while shorting those with a near-term maturity, allowing it to profit from the contango that NG often exhibits. GASZ is currently up over 3% on the year [see also Which Natural Gas ETF Is Right For You? UNG vs. GASZ vs. GAZ]. [...]

  2. [...] ETN, which will not incur tracking error or distribute a K-1, puts a unique spin on natural gas investing. In an attempt to battle contango, GASZ shorts the near month natural gas contracts while [...]

  3. [...] ETN, which will not incur tracking error or distribute a K-1, puts a unique spin on natural gas investing. In an attempt to battle contango, GASZ shorts the near month natural gas contracts while [...]

  4. [...] This article was originally written by Daniela Pylypczak, and posted on CommodityHQ. [...]

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