Under The Hood: No Gas Pains With This Nat Gas ETF

Apply any and all flatulence metaphors deemed appropriate and you'll have a humorous, yet accurate way of describing the performance of natural gas futures over the past few years. Simply put, nat gas futures have been in a tailspin since the commodities bubble burst in 2008 and now reside below $4 per million British thermal units. Ugly is the only way to describe the chart. For some reason, producers keep exploiting shale plays, bringing excess supply to market, but that hasn't necessarily hampered the performance of nat gas stocks or equity-based ETFs, so let's go under the hood with the First Trust ISE-Revere Natural Gas Index Fund FCG. Despite the aforementioned multi-year tumble in nat gas futures, FCG has put in an impressive recent performance, surging more than 36% in the past six months. This is an attractive chart that shows FCG recently cleared some uptrend resistance at $21 and the ETF looks poised to turn that old resistance into new support as it moves higher. But why is FCG going to move higher? Fair question, especially given the exposure to natural gas by so many of FCG's key constituents. The answer is in the details. FCG holds 31 stocks, but the top holding, Sandridge Energy SD, barely accounts for more than 4% of FCG's weight. Everything else is weighted between 2.92% 3.95%. That "everything else" includes major integrated oils such as Exxon Mobil XOM and ConocoPhillips COP, the largest and third-largest U.S. oil companies, respectively. For some global flavor, FCG's features exposure to Royal Dutch Shell RDS and Total TOT, Europe's largest and third-largest oil companies. FCG also features Chesapeake Energy CHK, the second-largest U.S. nat gas producer behind Exxon, and Devon Energy DVN, itself a major gas player. Thing is about Chesapeake and Devon is that both companies are making major efforts to move away from nat gas production to become players in safer, more cost-efficient onshore oil drilling. Again, this is a point in FCG's favor and shows this isn't a pure nat gas ETF. Currently trading around $21.40, FCG has barely moved from its inception price of $20 in May 2007. Then again, remember what an ETF like this had to deal with in 2008 and 2009. The expense ratio is a tad high at 0.6%, but FCG is optionable and shortable. More importantly, this gas play isn't bloated at all. It's more a play on oil at this point and that bodes well for near and mid-term gains.