Natural gas exchange-traded funds (ETFs) 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.
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Natural gas ETFs
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.
U.S. Natural Gas Fund
United States Natural Gas Fund
The United States Natural Gas Fund (UNG -7.19%) 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 1.01% 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 -23.14%, showing how futures-based ETFs can struggle over long periods. This ETF is best suited for short-term trading.
U.S. 12 Month Natural Gas Fund
United States 12 month natural gas fund
The United States 12 Month Natural Gas Fund (UNL -4.52%) also aims to track the price of natural gas delivered at Henry Hub, Louisiana, but it follows a different futures contract strategy than the previous ETF.
Instead of holding only the nearest-month contract, this ETF spreads its exposure across 12 consecutive months, meaning it holds the front-month contract plus contracts for the following 11 months.
This laddered approach reduces the impact of contango since the fund isn’t constantly rolling over just the near-month contract at higher prices. However, this comes at a trade-off—it has less direct correlation to spot natural gas prices than the ETF, making it a less volatile but also less reactive investment.
As a result, while the previous ETF has suffered a -23.14% 10-year annualized return due to contango, this ETF’s 10-year return is less severe at -5.09%. Still, this fund is better suited for medium-term holds rather than long-term investments.
The downside? It is even more expensive than the first, with a 1.71% expense ratio, making it a costly option for natural gas exposure.
ProShares Ultra Bloomberg Natural Gas
ProShares Ultra Bloomberg Natural Gas
The ProShares Ultra Bloomberg Natural Gas (BOIL -14.19%) is designed as a short-term trading tool, offering leveraged exposure to natural gas prices.
It aims to deliver twice the daily return of the Bloomberg Natural Gas Subindex, making it a high-risk, high-reward play on short-term price movements.
This ETF achieves this leverage by holding natural gas futures contracts, with cash equivalents as collateral to maintain the required margin.
However, it is not meant to be held long-term. In addition to suffering from contango, it also experiences volatility drag, where daily rebalancing causes compounded losses over time in choppy markets due to the fund resetting its leverage each day.
The result? A staggering 10-year annualized return of -57.24 % highlights how dangerous long-term holding can be.
Like most leveraged ETFs, this one is expensive, with a 0.95% expense ratio, making it best suited for short-term speculation, not buy-and-hold investing.
ProShares UltraShort Bloomberg Natural Gas
ProShares UltraShort Bloomberg Natural Gas
The ProShares UltraShort Bloomberg Natural Gas (KOLD 14.31%) is the inverse version of the last one, designed for short-term traders who are bearish on natural gas prices.
It aims to deliver twice the inverse (-2x) of the daily return of the Bloomberg Natural Gas Subindex, making it a tool for those looking to profit from falling natural gas prices.
Like the previous ETF described, this one uses natural gas futures contracts, with cash equivalents held as collateral to maintain margin requirements.
However, it is not suitable for long-term holding. It suffers from the same contango effects that can erode value. Like all leveraged ETFs, it experiences volatility drag, where daily resets lead to compounding losses over time, especially in choppy markets.
The result is a 10-year annualized return of -17.96%, proving how destructive holding an inverse ETF for extended periods can be.
This ETF also carries a 0.95% expense ratio, making it a costly but effective short-term trading tool for those looking to bet against natural gas.
First Trust Natural Gas ETF
First Trust Natural Gas ETF
The First Trust Natural Gas ETF (FCG -11.43%) takes a different approach than the previous options by tracking the ISE-Revere Natural Gas™ Index, which holds natural gas stocks rather than natural gas futures.
Instead of directly tracking natural gas prices, FCG invests in companies that generate a substantial portion of their revenue from natural gas exploration and production.
This includes a mix of traditional energy stocks and master limited partnerships (MLPs), which are known for their tax-advantaged income structures.
One advantage of FCG is its lower 0.60% expense ratio, making it more affordable than futures-based funds. It also offers a 2.89% 30-day SEC yield, giving investors a small income component in addition to price exposure.
However, because FCG holds stocks rather than futures, it is less correlated to spot natural gas prices. While it will generally move in the same direction as natural gas, it is still influenced by broader stock market trends, company-specific risks, and overall energy sector performance.
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How to invest
How to invest in natural gas ETFs
Investing in natural gas ETFs starts with defining your investment goals. Are you looking to bet against natural gas prices, speculate on short-term price increases, or take a long-term stake in the industry?
Your answer will determine whether you should focus on an inverse ETF, a leveraged long ETF, or an equities-based fund that invests in natural gas companies rather than futures contracts.
Once you’ve clarified your approach, it’s important to review your ETF options. Make sure you understand how futures-based ETFs operate and the unique risks involved, such as contango, where later-dated contracts are more expensive than near-term ones, eroding returns over time.
Equities-based ETFs, on the other hand, may not track natural gas prices as directly since they hold stocks of companies in the industry, which are affected by broader market conditions.
Additionally, be aware of the tax implications of these ETFs, as some may be structured as limited partnerships or commodity pools, leading to different tax treatments than traditional stock ETFs.
Next, you’ll need to open a brokerage account if you don’t already have one. Most major online brokers, such as Fidelity, Schwab, TD Ameritrade, and Interactive Brokers, offer access to natural gas ETFs.
If you plan to trade leveraged or inverse ETFs, check whether your broker requires special approval for complex products.
Once your account is set up, you can search for the natural gas ETF of your choice using its ticker symbol. Review its current price, expense ratio, holdings, and recent performance to ensure it aligns with your expectations.
If you’re new to trading, consider starting with a small position to test how the ETF reacts to market conditions before making a larger investment.
When you’re ready, place a buy order through your brokerage platform. You’ll need to choose between a market order, which executes immediately at the best available price, or a limit order, which allows you to set a specific price at which you’re willing to buy.
If you’re trading highly volatile ETFs, using a limit order can help prevent slippage from sudden price movements.
Finally, once you’ve made your investment, it’s important to monitor your position regularly.
Futures-based and leveraged ETFs require active management, as price movements can be extreme, while equities-based ETFs can be held for the long term but still require tracking to assess performance and dividend distributions.
FAQ
Natural Gas ETFs FAQ
How do natural gas ETFs work?
Natural gas ETFs provide exposure to natural gas prices by either holding futures contracts that track price movements or investing in natural gas-related stocks (like FCG), depending on the fund’s structure.
How to trade a natural gas ETF?
You can trade natural gas ETFs through a brokerage account by searching for the ETF’s ticker symbol, reviewing its price and performance, and placing a buy or sell order, just like you would with stocks.
What are the risks associated with investing in natural gas ETFs?
Futures-based natural gas ETFs face risks like contango, where rolling futures contracts lead to losses over time, and high volatility, which can cause extreme price swings. Leveraged ETFs also experience volatility drag, making them risky for long-term holding.
What is the largest natural gas ETF?
The United States Natural Gas Fund is the largest natural gas ETF, with hundreds of millions in assets under management and a focus on near-month natural gas futures contracts.