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Top 5 best natural gas ETFs

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A sudden change in sentiment toward nuclear power could improve the prospects for natural gas – a plentiful energy source that’s long been touted as an alternative to uranium-fueled power plants. The added infrastructure costs associated with delivering and using natural gas as a power source could look negligible if governments around the world look for alternatives to nuclear power in the future. Here’s a list of the Top 5 best natural gas ETFs ranked by trading volume:

United States Natural Gas Fund, LP (NYSE:UNG), average volume 11.6 million shares: UNG tries to tie itself to short-term changes in the spot price of natural gas. The fund invests in short-term NYMEX futures contracts, rolling over from month-to-month within two weeks of a contract’s expiration (to avoid having to take physical delivery of the underlying commodity). There’s at least one risk inherent in investing in near-month futures contacts for natural gas, though, and that’s contango. If the short-term price for a natural gas futures contract is lower than the mid-term price (i.e. if a January contract is worth less than a February contract), UNG can lose money even as natural gas prices are rising since the fund has to roll over its futures positions in order to meet its mandate.

First Trust ISE Revere Natural Gas ETF (NYSE:FCG), average volume 367,000 shares: FCG invests directly in natural gas stocks and companies that operate within the industry. As prices for natural gas rise, so too should the profit margins for the companies that are drilling for natural gas. FCG’s top three natural gas holdings as of March 15 were: West Texas-based natural gas explorer and producer SandRidge Energy Inc. (NYSE:SD), large-cap natural gas producer Chesapeake Energy Corporation (NYSE:CHK) and SM Energy Co. (NYSE:SM) – a natural gas explorer and producer with operations from the Rockies to the Gulf of Mexico. By investing in natural gas companies rather than futures contracts, FCG is less volatile than the other ETFs on this list.

iPath Dow Jones-UBS Natural Gas Subindex Total Return ETN (NYSE:GAZ), average volume 162,000 shares: GAZ is linked to returns on the Dow Jones-UBS Natural Gas Subindex. The ETN operates much like UNG, investing in short-term natural gas futures contacts. The only drawback is the ETN’s much-lower trading volume, which makes it less responsive to changes in the market and could potentially make it difficult to liquidate a large position.

U.S. 12 Month Natural Gas Fund LP (NYSE:UNL), average volume 19,600 shares: UNL tracks the price of natural gas by investing in futures contracts on the NYMEX. The fund invests in 12 consecutive months of contracts to limit the risk posed by contango.

Teucrium Natural Gas Fund (NYSE:NAGS), average volume 6,200 shares: Like UNL, NAGS seeks to limit contango risk by investing in a range of natural gas futures on the NYMEX. Rather than buying 12 months of contacts, though, NAGS invests in the nearest to spot month March, April, October and November futures contracts.

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