Keep Warm This Thanksgiving With This Natural Gas ETF

It is no secret that energy prices have taken quite a hit lately.

However, natural gas funds such as the United States Natural Gas Fund, LP (NYSE: UNG) will look to capitalize on the recent polar vortex that has been sweeping the country and will likely affect Thanksgiving weekend.

UNG Profile

UNG is an exchange-traded security that is designed to track in percentage terms the price movements of natural gas delivered at the Henry Hub in Louisiana.

The fund is made up of a portfolio of futures contracts for natural gas as well as swaps and forward contracts. Cash, equivalents and U.S. government obligations collateralize the investments.

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UNG has managed to be much less affected by the sharp decline in energy prices over the last two quarters. Meanwhile, the price of light sweet crude oil hit a new four-year low and is down 30 percent since the second week in June.

UNG is down only 10 percent since the second week in June and is up 11 percent year to date. This natural gas ETF has a management fee of 0.60 percent.

UNG Future

Looking ahead over the long-term: The upside for the price of natural gas could be limited by the increasing supply, specifically from the fracking boom in the U.S.

On the flip side, if the United States limits exports and pushes forward with stricter regulations on coal, it could increase demand for natural gas significantly.

In the short-term, the first wave of cold weather hitting the country could be a boom to the commodity as evidenced by the 10 percent rally from last week’s low. The polar vortex that gripped the nation last winter sent the ETF higher by more than 40 percent in a matter of weeks.

Whether the ETF is driven by short-term weather or long-term supply-demand, investors in UNG should expect heavy volatility in the months ahead.

Image Credit: martha_chapa95, Flickr