Oil & Gas

Invest in a First-of-Its-Kind Natural Gas ETF

The First Trust Natural Gas ETF (NYSEARCA:FCG) tracks U.S. companies that derive a substantial portion of their revenue from the exploration & production of natural gas.

FCG is the first exchange-traded fund (ETF) of its kind, giving a dedicated exposure to the U.S. natural gas market. Fortunately, the fund does a sufficient job of capturing the concentrated space.

The fund selects from companies that are involved in natural gas in some capacity, dedicating 15% of its portfolio to master limited partnerships (MLPs) and the remaining 85% to equities. It then applies linear cap-weighted rankings to each bucket.

The index is constructed by establishing the universe of U.S. listed stocks of companies involved in the exploration and production of natural gas. Companies whose natural gas reserves do not meet certain requirements are eliminated.

The index is designed to track the performance of mid- and large-cap companies that derive a substantial portion of their revenues from midstream activities and/or the exploration and production of natural gas.

To meet index eligibility, a stock must also satisfy market capitalization, liquidity and weighting concentration requirements. All eligible operating companies and MLP stocks are ranked on both liquidity and market capitalization within their segments.

Weights within each segment are scaled so that the largest weight is a multiple of the smallest weight. The Index is optimized for liquidity and market capitalization at the component level.

Stock Courtesy of StockCharts.com

FCG has $701.2 million in assets under management, and it has an average spread of 0.5%. The fund’s expense ratio is 0.60%.

Average daily trading volume and market cap are factored in both selection and weighting. The resulting portfolio is a near-perfect representation of the market. The index is rebalanced and reconstituted on a quarterly basis.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.