Scalper1 News
Natural gas prices were thwarted by sluggish trends with the energy market rout and a milder winter so far this year. Among the issues hurting the broader energy space, ample supplies and falling demand on global growth worries are primary. This, along with considerably warmer temperature in December (due to a protracted and stronger El Nino) played foul, taking natural gas futures to a 14-year low (read: No Winter Cheer for Natural Gas ETFs?). As a result, most of the exchange traded products tracking natural gas are in red this year defying seasonal strength. Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region putting natural gas in focus. In fact, in 2014, the Polar Vortex caused natural gas prices to jump over 50%. Winter Storm Jonas to Rescue This year, the winter storm Jonas recently salvaged this besieged commodity. The whiteout struck on the East Coast, with icy temperatures and a snow emergency bolstering demand for natural gas for a valid reason. As almost 50% of Americans use natural gas for heating purposes, withdrawals in natural gas supplies push up the commodity’s prices. The U.S. Energy Information Administration also gave same cues on Thursday when it declared the largest weekly drawdown of gas from storage this winter, as per Wall Street Journal. Natural-gas prices went ‘above $5 per million British thermal units in parts of the Northeast for the first time since last winter’, as indicated by Wall Street Journal. If such sub-zero temperatures continue even after the snow storm, it will bring a great deal of luck for natural gas, albeit for the short term. ETF Impact In fact, an ETF tracking the natural gas futures – United States Natural Gas ETF (NYSEARCA: UNG ) -added about 0.13% on January 22. Investors should note that natural gas equities, such as First Trust ISE-Revere Natural Gas Index Fund (NYSEARCA: FCG ), were the real winner that added 5.2% on January 22. Below we highlight a couple of natural gas ETFs that investors could use to play if the U.S. economy remains snowed in the near term (see all Energy ETFs here). iPath Dow Jones-UBS Natural Gas ETN (NYSEARCA: GAZ ) This is an ETN option for natural gas investors. It delivers returns through an unleveraged investment in the natural gas futures contract plus the rate of interest on specified T-Bills. The product follows the Dow Jones-UBS Natural Gas Total Return Sub-Index. The note is less popular with AUM of $4.9 million. It is a high-cost choice, charging 75 bps in annual fees. GAZ is down 30.6% in the year-to-date frame and gained about 2% on January 22, 2016. FCG in Focus This product offers exposure to the U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows ISE-REVERE Natural Gas Index and holds 30 stocks in its basket, which are well spread out across components (read: 5 ETFs Losing Half or More of Their Value in 2015 ). Southwestern Energy Company, Antero Resources Corporation and Gulfport Energy Corporation occupy the top three positions in the portfolio with a combined 16% of total assets. This indicates that no single company dominates the fund’s returns, preventing heavy concentration. The fund has a blended style and is diversified across various market cap levels with 53% in small caps, 31% in mid caps and the rest in large caps. The product has amassed $132.7 million in its asset base while sees solid volume of nearly 2.5 million shares per day. It charges 60 bps in annual fees from investors and has a Zacks ETF Rank of 3 (Hold) with a High risk outlook. The fund is down 13.7% so far this year (as of January 22, 2016). Bottom Line Though there have been some incredible price increases lately in the natural gas market despite weak demand-supply fundamentals, the commodity is due for a price reversal. The weather will likely warm up across the country with the advent of spring and natural gas demand will trip up then. This is truer in the light of the fact that present stockpiles are pretty higher than the five-year average and the year-ago level. So, investors solely relying on a weather play might proceed with a short-term notion. Original Post Scalper1 News
Scalper1 News