Natural Gas ETFs Trying To Turn The Fire Back On

The United States Natural Gas UNG languished through a brutal October and the widely followed, futures-based natural gas exchange traded product is now saddled with a one-month loss of nearly 22 percent. That's enough to put UNG in bear market territory.

Mild winter late fall temperatures across much of the US partially explain the recent spate of woes encountered by natural gas futures and UNG. Traders are taking notice as volume in the usually heavily traded UNG has recently been above average.

“Trading volume in the product has been well above average for at least the past month in the product, and even though there has been tremendous price pressure in the space as of late, year-to-date UNG has still actually attracted net new assets (over $106 million in) via creation flows,” said Street One Financial Vice President Paul Weisbruch in a recent note.

Equtiy Side

On the equity side, natural gas stocks haven't been much to write home about either, though the 5.6 percent shed by the First Trust ISE-Revere Natural Gas ETF FCG over the past month looks good compared to UNG's recent slide. To FCG's credit, it's higher by nearly 2 percent over the past week.

FCG holds 39 stocks, and in order for those companies to qualify for admission to the ISE-Revere Natural Gas Index (FCG's underlying benchmark), they must “derive a substantial portion of their revenues from the exploration and production of natural gas,” according to First Trust.

Contango

After tumbling through much of last year and in the early stages of 2016, FCG underwent a reverse split to artificially inflate its price. Still, FCG is the safer bet for conservative investors looking to play a natural gas rebounds because, unlike UNG, equities do not expose investors to the potentially dangerous effects of contango.

“UNG has been maligned in the past due its specific fund construction in owning front month Natural Gas futures, which are subject to the negative effects of contango when present in the futures markets, but like its cousin fund, the United States Oil Fund USO, this has not stopped either fund from becoming and remaining the largest funds in their respective spaces in terms of assets under management,” adds Weisbruch.