Forget UNG: A much better ETF to play a natural gas rebound

As we have been reporting, contango is back in full force with its usual dire effects on UNG. For investors, who think that natural gas prices will rebound at some point, there are much better ways to invest using ETF.

Please take a look at the charts of FCG versus UNG:

1-year:

 

In this period, UNG is down over 45%, while FCG is up over 17%.

3- years:

In this longer time frame, UNG is down a staggering 90%, while FCG is up 7.50%.


So what is FCG? It is the First Trust natural gas companies ETF. These are the top holdings, and percentages:

SandRidge Energy, Inc.	4.12
Chesapeake Energy Corporation	4.00
Cimarex Energy Co.	3.73
Devon Energy Corporation	3.59
SM Energy Co.	3.55
Suncor Energy, Inc.	3.52
Range Resources Corporation	3.44
Stone Energy Corporation	3.43
Exxon Mobil Corporation	3.43
EOG Resources, Inc.	3.41

The First Trust ISE-Revere Natural Gas Index Fund is an exchange-traded fund. The investment objective of the Fund is to seek investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the ISE-Revere Natural Gas IndexTM

The ISE-Revere Natural Gas IndexTM is an equal-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas. The Index is constructed by establishing the total population of stocks listed in the U.S. of companies involved in the exploration and production of natural gas and then eliminates stocks whose natural gas proved reserves do not meet certain requirements. From this universe, all candidate stocks are ranked using four different methods including Price/Earnings ratio, Price/Book ratio, Return on Equity and the correlation to gas futures prices. To meet index eligibility, a stock must also satisfy market capitalization, liquidity and weighting concentration requirements. Then rankings are then averaged and the top 30 stocks based on final rank are selected for the Index. The Index is rebalanced on the application of the above model on a quarterly basis.