As energy demand rises, is investing in natural gas a good bet?
Q: What are some good exchange traded funds for investors interested in betting on natural gas?
A: Given the fact the economy appears to be on the mend, investors are betting that demand for energy will increase.
Prices for gasoline at the pump are already on the rise. And some hope natural gas, which has some industrial uses, might also enjoy an increase in value.But natural gas has been a very different story and a bigger disappointment. The United States Natural Gas (UNG) exchange traded fund, which tracks the value of natural gas, has been a big loser the past two years. The value of the ETF has fallen 72% over the past two years.
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Adding to the pain of natural gas investors is the fact that the United States Natural Gas ETF charges a 0.9% a year expense ratio. That's relatively high as far as ETFs go. The Vanguard ETF that invests in the Standard & Poor's 500 large-company stock index charges just 0.06%. You can look up the expense ratios of ETFs using USATODAY.com's ETF snapshot pages, such as the snapshot for United States Natural Gas fund.
The main reason the United States Natural Gas ETF is down is because the price of natural gas has been falling. All natural gas ETFs that mirror the value of natural gas would fall when the value of the underlying commodity declines.
But with that said, it's a good idea to periodically make sure you have the best ETF to meet an investment goal. One way to do this is by using an online ETF matching system. These matching systems examine an ETF and show you others that are comparable. Fidelity has a powerful ETF matching system.
The Fidelity tool will provide a comparable fund to the United States Natural Gas ETF, if you know where to look. First enter the UNG symbol into the symbol lookup box and choose Compare from the dropdown menu under the symbol box.
Next, click the Go button. And next, click on the Show Similar ETFs link in the text on the right-hand side of the page. This produces a comparison list of other funds.
Another technique is to enter search terms into stock lookup systems, including the Money section at USATODAY.com. If you enter natural gas as a search term in the get a quote box you will see some alternative funds, including the iPath Dow Jones-UBS Natural Gas Subindex (GAZ). This ETF has one advantage over the United States Natural Gas ETF, the expense ratio is lower at 0.75%.
But again, your success or failure as an investor in natural gas ETFs lies mostly on the rise or fall of natural gas prices. And that's the case no matter which natural gas ETF you choose.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantzYou might also be interested in:
