Natural gas exchange-traded funds (ETFs) are listed investment vehicles that either own commodity futures or producers and pipeline stocks. They offer investors a way to gain exposure to the natural gas market without directly trading futures or stocks.
As a key fuel in the global energy transition, natural gas plays a critical role in reducing reliance on coal and supporting the shift toward lower-emission energy sources.
With rising global demand -- driven by increased industrial use, liquefied natural gas (LNG) exports, and the need for stable energy supplies -- natural gas remains vital.
Investors use natural gas ETFs for various purposes, including hedging against energy price fluctuations or speculating on short-term price movements.
However, these are complex financial products, and beginners should always do their own research before investing.
Five natural gas ETFs
With multiple natural gas ETFs available, choosing the right one can be tricky. To help, we’ve selected five natural gas ETFs based on liquidity, total assets under management (AUM), fees, and investment methodology.
While all of these ETFs provide exposure to the natural gas market, each one operates differently, whether through futures contracts, energy stocks, or leveraged strategies. Some are designed for long-term investment, while others are better suited for short-term speculation.
Before investing, make sure to read into the details, as each fund has its own quirks that could surprise unsuspecting investors.
1. United States Natural Gas Fund
NYSEMKT: UNG
Key Data Points
The United States Natural Gas Fund (UNG -2.44%) aims to reflect the daily price movement of natural gas as delivered at Henry Hub, Louisiana, a key pricing point for U.S. natural gas.
However, this ETF does not hold physical natural gas. Instead, it gains exposure through futures contracts, specifically the nearest-month contract traded on the New York Mercantile Exchange (NYMEX).
This means the fund is constantly rolling contracts forward as they expire. In addition to futures returns, it also earns interest from collateral investments in government bonds minus fund expenses.
One major drawback is contango, which occurs when later-dated futures contracts are more expensive than near-term ones, leading to losses over time as the fund rolls into higher-priced contracts. With a steep 1.24% expense ratio, this makes it a costly option.
As a result of these structural issues, the ETF has delivered a brutal 10-year annualized return of -23.32%, showing how futures-based ETFs can struggle over long periods. This ETF is best suited for short-term trading.
2. United States 12 Month Natural Gas Fund
NYSEMKT: UNL
Key Data Points
3. ProShares Ultra Bloomberg Natural Gas
NYSEMKT: BOIL
Key Data Points
4. ProShares UltraShort Bloomberg Natural Gas
NYSEMKT: KOLD
Key Data Points
5. First Trust Natural Gas ETF
NYSEMKT: FCG
Key Data Points
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How to invest in natural gas ETFs
To invest in natural gas ETFs, open a brokerage account and search for the fund's ticker. Enter the number of shares you want to buy and whether you're placing a market or limit order.
Do your homework first by taking the following steps:
- Define your investment goals: Are you seeking to bet against prices, speculate on short-term moves, or get long-term industry exposure?
- Understand how futures ETFs work: Futures ETFs track the price of natural gas or another commodity. Risks like contango can erode returns when longer-dated contracts cost more than near-term ones.
- Choose the type of ETF: Make sure you understand the type of ETF you're buying. Inverse ETFs profit from falling prices, while leveraged ETFs magnify gains and losses. Leveraged and inverse ETFs may require special trading permission. Equity-based ETFs hold natural gas companies and will also be influenced by broader stock market conditions. Leveraged and futures ETFs need active oversight, while equities-based ETFs can be longer-term holds.
- Review tax implications: Some ETFs are structured as limited partnerships or commodity pools, which get different tax treatment.