Exchange Traded Funds (ETFs)

Invest in Liquified Natural Gas with This Fund

United States Natural Gas Fund, LP (NYSEARCA:UNG) holds near-month futures contracts in natural gas, as well as swap contracts.

UNG invests primarily in futures contracts for natural gas that are traded on the New York Mercantile Exchange, NYMEX, ICE Futures Europe and ICE Futures U.S. and other foreign exchanges. The fund offers straightforward exposure to front-month natural gas futures, rolling expiring front-month contracts to the next nearest month.

This method increases the sensitivity to underlying gas prices and to the shape of the futures curve. The commodity’s contract is for natural gas delivered at the Henry Hub, Louisiana.

The fund primarily invests in natural gas futures listed in New York Mercantile Exchange (NYMEX) and may invest in forwards and swap contracts. Structured as a commodities pool, investors should expect a K-1 at tax time and a blended tax rate.

Source: www.stockcharts.com

UNG currently trades around $14.48, has $504 million in net assets and an expense ratio of 1.11%, meaning it is relatively expensive to hold in relation to other exchange-traded funds.

U.S. LNG inventory is currently well below its five-year average, said Michelle Connell, CFA, president and owner of Portia Capital Management, of Dallas, Texas. The biggest issue for the U.S. LNG industry is that production of the energy source has never been profitable on its own but is a byproduct of oil production, she added.

“There isn’t enough oil being produced,” Connell said.

Currently, only 11.7 million barrels/day are being produced. Pre-pandemic, production hit 13 million barrels/day, Connell continued.

Instead of investing to increase capacity, oil companies have been focusing on boosting their dividends, Connell said. If they pivot, these companies face a backlash from investors via the sale of their stock, Connell added.

“Their market value could get crushed,” Connell said.

Of course, you will want to exercise your own due diligence in deciding whether this fund fits your own individual portfolio goals and needs.

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.