Yesterday we profiled exchange traded funds that invest in natural gas futures, and this presents the opportunity to also highlight those ETFs that are exposed to natural gas related equities. [ETF Chart of the Day: Natural Gas]
Historically, equities that are involved in the production, exploration, or marketing/servicing of natural gas have displayed a high level of correlation with the prices of natural gas itself, and investing in such funds can be a way for investment managers to monetize their views on natural gas price movements themselves.
FCG (First Trust ISE-Revere Natural Gas Index) is the benchmark fund in the category, having attracted nearly $400 million in assets since debuting in 2007. The fund is equal-weighted and owns equities that are involved in the exploration and production of natural gas.
Currently, top holdings of FCG are XOM, STR, COP, STO and RDS.A.
A number of ETFs exist focusing on both oil and gas explorers and producers, but FCG remains the only “pure-play” in the landscape as far as devoting exposure to those equities that derive a significant portion of revenues from natural gas.
For instance, XOP (SPDR S&P Oil & Gas Exploration & Production), IEO (iShares DJ U.S. Oil & Gas Exploration & Production), PXE (PowerShares Dynamic Energy Exploration & Production) and WCAT (Jefferies TR/J CRB Wildcatters Exploration & Production Equity) are several examples that grant exposure to equities that are involved in both the natural gas as well as the oil spaces.
Two relatively new additions to the natural gas equity space are GASL (Direxion Daily Natural Gas Related Bull 2X) and GASX (Direxion Daily Natural Gas Related Bear 2X), which track the same underlying index as does FCG, only the fund objectives are aligned to deliver 2 times inverse or long performance on a daily basis.
For those who find appeal in FCG and are using the fund as a hedging strategy or simply a short term way to “play” natural gas prices, GASL and GASX may also present some opportunity.
Natural gas “equity” related ETFs may have even broader appeal in that analysts in the energy space have also noted the high potential for M&A activity in the natural gas space, as evidenced in XOM’s acquisition of XTO last year for example.
First Trust ISE-Revere Natural Gas Index
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