If there's one company that epitomizes the global transition from fossil fuels to renewable resources, it's TotalEnergies SE (ticker: TTE).
In 2021, the oil and gas giant, then known as Total, plans to phase out emissions and move toward solar and wind projects and other low-carbon energy generation, changing its current name. Rebranded to.
Sure, it's still one of the world's major oil and gas companies, but it's on track to be one of the top five producers of wind and solar power by 2030.
“Oil was the energy of the 20th century, but natural gas and carbon-free electricity are at the heart of tomorrow's energy systems,” the France-based company said in late March, marking its 100th anniversary. “Natural gas is necessary in the energy transition, supporting the rise of intermittent renewable energy and replacing coal, which emits twice as much CO2 when generating electricity.”
That's a long-term view, but Daniel Bustamante, managing partner and chief investment officer at hedge fund Bustamante Capital, is bullish on natural gas in the short term because he believes inflation will pick up again. is. Commodities like natural gas often rise in price as the economy heats up, so they act as an inflation hedge.
“Given that the Federal Reserve is losing the fight against inflation, it's likely that inflation will start to rebound again, and some natural gas and natural gas utilities are already seeing inflation,” he said. “There is,” he said. “I fully expect trading into commodities like natural gas to resume with momentum this quarter and into the summer of 2024.”
At the moment, natural gas is in oversupply due to high oil production and gas as a byproduct.
But James Hill, CEO of natural gas exploration company MCF Energy, said most in the industry expect it to be temporary.
“From an investment perspective, this gives investors the possibility to ride the next wave,” he says. “The good news is that most producers are optimistic about the long-term prospects for gas as a fuel.”
| Natural gas ETF/fund | expense ratio |
| Hennessy Gas Utility Fund (ticker: GASFX) | 1% |
| First Trust Natural Gas ETF (FCG) | 0.60% |
| United States Natural Gas Fund LP (UNG) | 1.06% |
| US 12 Month Natural Gas Fund LP (UNL) | 0.90% |
| ProShares Ultra Bloomberg Natural Gas (BOIL) | 2.11% |
| ProShares UltraShort Bloomberg Natural Gas (KOLD) | 1.66% |
Hennessy Gas Utility Fund (GASFX)
The mutual fund invests in members of the American Gas Association that are included in the AGA Stock Index and aims to track the performance of the index by more than 95%. It invests in companies in roughly the same proportion as those included in the index, with no company accounting for more than 5% of the fund's assets.
More than 60% of the companies in the portfolio are in the utilities sector, with the next largest portion falling into the energy sector.
The Hennessy Gas Utilities Fund, which has net assets of $424 million, has an expense ratio of 1% but yields about 2.5%. Minimum investment requirement is $2,500.
First Trust Natural Gas ETF (FCG)
This exchange-traded fund (ETF) also tracks an index comprised of companies that earn the majority of their revenue from natural gas exploration and production. The company owns 50 companies, and its top holdings account for 4.5% of its assets.
Like some of the Hennessy Fund's holdings, FCG companies are also often involved in the oil industry, as natural gas and crude oil are often produced together. The ETF has an expense ratio of 0.6% and a yield of 2.3%.
As an exploration and production company fund, FCG may offer a more aggressive approach to the natural gas market, while GASFX may be on the more defensive side. Utilities are often considered defensive assets because they can hold their value better than other types of businesses during economic downturns. Because people need natural gas and electricity regardless of their economic situation.
United States Natural Gas Fund LP (UNG)
The first two funds on this list invest in stocks and surround them with a single ticker symbol. UNG and the rest of the funds on this list are based on natural gas futures.
A futures is a contract that obligates the holder to buy or sell a commodity at a specified price on a specified date in the future. You can also invest directly in natural gas futures, but you will need to learn about margin and rollover contracts.
While buying these funds is less of a hassle, you should also understand that they are not designed to be held for the long term. These funds do not accept delivery of natural gas. Instead, you roll over the futures contract. Because futures contracts that expire further into the future are often more expensive than those held by the Fund, the Fund will incur a loss on their rollover.
UNG invests in natural gas front-month futures contracts traded on the New York Mercantile Exchange (NYMEX) and can also invest in futures and swaps. Contracts for months that are about to expire will be carried over to the next month.
US 12 Month Natural Gas Fund LP (UNL)
Like UNG, this fund invests in last-month natural gas futures, but also in subsequent 11-month contracts.
We calculate the daily movement in the average price of these 12 contracts, weighting each month equally. UNL can also invest in forwards and swaps.
Again, this fund is meant to track daily returns. This means investors can learn about intraday movements in natural gas without the hassle of buying and selling futures contracts themselves. But holding a fund for more than a day is likely to introduce tracking errors, and the longer you hold a fund, the more that error increases.
ProShares Ultra Bloomberg Natural Gas (BOIL)
This fund is for investors who are very bullish on natural gas. Like UNG, the firm focuses its investments on monthly natural gas contracts on his NYMEX, but uses leverage to increase its daily movement in the sub-index that tracks natural gas prices. Offers double.
That extra dynamism makes BOIL a useful tool for day traders, but again, the fact that profits compound daily means that this fund is simply a long-term investment that seeks to track the price of natural gas. It means it is not suitable for home.
While much of the commentary here revolves around how futures-based funds are not suitable for long-term investing, those who are confident that natural gas prices will go their way can invest in these funds on a daily basis. It is possible that the company may decide to hold more than If their beliefs are correct, the tracking error will be even more favorable. However, commodity markets are notoriously volatile and difficult to time.
ProShares UltraShort Bloomberg Natural Gas (KOLD)
This fund is the opposite of BOIL. He of the same natural gas sub-index as BOIL aims to provide twice the reciprocal of the performance per day, i.e. -2x.
In other words, it's aimed at investors who think natural gas prices will fall. This can happen if inventory is higher than expected, the winter is warmer than expected, or the summer is cooler than originally expected.
Key points about natural gas ETFs and funds
Rather than investing in futures-based natural gas ETFs, buy-and-hold investors can benefit from investing in natural gas producer and utility stocks and funds, like the first two funds on this list.
By owning a company rather than futures, investors can not only take advantage of long-term stock price appreciation, but also benefit from stock buybacks and dividends, which are not available with futures.
