Gas prices have already risen over 80% from their low point in April 2020, when the pandemic halted industrial and economic activity. However, natural gas demand has already bounced back as industrial activity resumes, while extreme weather this year is leading to even more demand.  As a result, gas prices have shot up by 41% since last August. Moreover, natural gas futures rallied last week, recording their highest finish for the first time since late 2018 as summer heat intensified concerns about tight supplies later.

Furthermore, supplies and production could temporarily get affected by the hurricane Ida, which swept across the Gulf of Mexico, impacting about 15% of the U.S. total. Of course, it’s not helping that other parts of the country are dealing with a heatwave and many expect a cold winter.  

Natural gas ETFs such as the United States Natural Gas Fund LP (UNG) and the United States 12 Month Natural Gas Fund LP (UNL) are well-positioned to benefit from these benefits. They are also rated A (Strong Buy) in our proprietary POWR Ratings system.

United States Natural Gas Fund LP (UNG)

UNG offers exposure to one of the most important United States commodities, natural gas, which could also be a great hedge against inflation. It invests in natural gas futures and swap contracts. The fund has approximately $280.6 million in assets under management (AUM). UNG’s major holdings include Goldman Sachs FS Government Instl (FGTXX) and FidelityA Inv MM Fds Government Instl (FRGXX).

UNG has an expense ratio of 1.28% versus the category average of 0.79%. The fund has gained 64% year-to-date and 46.2% over the past six months. It closed yesterday’s trading session at $15.09 and is currently trading just 1.7% below its 52-week high of $15.35. UNG’s NAV stood at $13.50.

UNG’s POWR Ratings reflect this promising outlook. The ETF has an overall rating of A, which equates to Strong Buy in our proprietary rating system.

UNG has an A grade for Trade, Peer, and Buy & Hold. Of the 114 ETFs in the Commodity ETFs group, UNG is ranked #15.

United States 12 Month Natural Gas Fund LP (UNL)

UNL has approximately $11.4 million in AUM. The ETF provides exposure to natural gas futures which are spread equally across the nearest 12 contract months to mitigate the impact of contango on returns. The fund’s major holdings include Future Contract on Natural Gas Future Jan21, Natural Gas Future Feb21, and Future Contract on Natural Gas Future Dec20.

UNL has an expense ratio of 0.90% compared to the category average of 0.79%. The ETF has gained 36.5% over the past three months and 53% so far this year. The fund has a five-year monthly beta of 0.42, indicating that it is less volatile than the broader market.

It is currently trading at $11.61, just 1.3% lower than its 52-week high of $11.76. The fund has witnessed a net inflow of $1.85 million over the past year and is up 31.6% during the same period. Its NAV stood at $10.83 as of yesterday.

It is no surprise that UNL has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. It also has an A for Trade Grade, Peer Grade, and Buy & Hold Grade. In addition, it is currently ranked #40 of 114 ETFs in the same group.

UNG shares were trading at $15.30 per share on Tuesday afternoon, up $0.21 (+1.39%). Year-to-date, UNG has gained 66.30%, versus a 21.51% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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