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  Monday, May 04, 2015  Home > Money > Finance > Investment > Get Aboard the Natural Gas Wave with These ETFs!
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Get Aboard the Natural Gas Wave with These ETFs!

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Just look at what's happening in the energy markets right now ...

Iran is cutting off shipments to some of its biggest European customers — just out of spite for the nuclear technology dispute. Who will get dragged into this squabble next?

Furthermore — and I bet you've noticed — it's costing more to top off your car's gas tank these days. We're almost back to the 2008 "super-spike" gasoline prices in some parts of the U.S.

The headlines simply prove Sean's point: Natural gas is set to be the next big energy boom. It's much more efficient than crude oil in many cases ... and the U.S. has its own ample supply. We don't have to depend on imports.

Relying on imported energy is getting  riskier.
Relying on imported energy is getting riskier.

Why natural gas now and not a year ago? Because the situation has changed. Natural gas is relatively cheap, and the technology to produce more of it is developing quickly. The number of investor-friendly ways to get involved is exploding, too. You'll be hearing about some great profit plays from Sean.

For my part, I'm watching some natural gas-related ETFs. And I see opportunities in three specific areas ...

Opportunity #1: Natural Gas ETFs and ETNs

Not so long ago, the only way for an individual investor to get direct exposure to natural gas prices was through the futures market. This is complex and impractical for most people — even without the massive leverage.

As with so many other sectors, the ETF revolution brought a big change. Now several ETFs and exchange-traded notes allow you to participate in the global energy markets much more easily.

These have some drawbacks, though. Many commodity ETFs and ETNs still have very low volume. Some are even on my Deathwatch list.

Another problem is that futures markets, by their nature, are hard to track with any precision over the long-term. To learn why, see "What's All This Talk About Oil Futures and Contango?" The same applies for natural gas.

Yet another challenge: Complex instruments like these draw a lot of legal scrutiny, especially when they are new and unproven.Regulators have occasionally created roadblocks for commodity-based energy ETFs and ETNs.

Nevertheless, if you want to capitalize on quick moves in natural gas prices, take a look at these tickers:

  • iPath DJ-UBS Natural Gas Total Return ETN (GAZ) 

  • iPath Seasonal Natural Gas ETN (DCNG) 

  • Teucrium Natural Gas Fund (NAGS) 

  • UBS ETRACS Natural Gas Futures Contango ETN (GASZ) 

  • United States 12 Month Natural Gas Fund (UNL) 

  • United States Natural Gas Fund LP (UNG) 

  • ProShares Ultra DJ-UBS Natural Gas (BOIL) 

  • ProShares UltraShort DJ-UBS Natural Gas (KOLD)

Opportunity #2: Pipeline Profits

Natural gas travels by pipe.
Natural gas travels by pipe.

As you know, natural gas doesn't just appear out of nowhere. It's a useless resource if it can't get from the ground to your furnace.

Gas pipelines solve this problem nicely. They're a big business — and if Sean is right they're going to get bigger!

For tax reasons, energy pipelines are typically owned by "master limited partnerships," or MLPs. As I wrote almost two years ago, you can build a quick, diversified MLP portfolio with ETFs and ETNs. Individual MLP securities also have great potential if you pick the right one at the right time. I can't wait to see Sean's picks in this niche.

Opportunity #3: Small Cap Energy ETFs

Sean is very keen on small-cap natural gas stocks — and rightly so. The potential profits are enormous. But if you prefer a more diversified approach, ETFs may be a great answer.

Until very recently it was hard to find energy sector ETFs that weren't dominated by multinational conglomerates like ExxonMobil (XOM). Several new entrants make it easier to get involved in smaller energy stocks:

Natural gas comes from  surprising places.
Natural gas comes from surprising places.
  • Market Vectors Unconventional Oil & Gas ETF (FRAK) 

  • PowerShares S&P Small Cap Energy Portfolio (PSCE) 

  • Jefferies TR/J CRB Wildcatters Exploration & Production Equity ETF (WCAT)

As you can see, the biggest and best-known ETF players are moving quickly to get involved in natural gas. That should tell you something: This is a niche with huge potential!

I think natural gas ETFs will offer great opportunities over the next year or two. Do your research, get some help and good luck!


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