Mild Weather Forecast Cools Energy ETFs

Sometimes you can blame the weather. That's what happened this week to funds holding stocks that are punished when the price of natural gas falls.

The weather forecast for mild Northeastern temperatures diminished expected demand for home cooling.

Meanwhile, U.S. natural gas inventories following an annual cycle from a peak in November to a trough in March are building back up again.

On June 28, the U.S. Department of Energy's Energy Information Administration reported working gas inventories added another 99 billion cubic feet of natural gas for the week ending June 22, reaching a total of 2.443 trillion cubic feet.

The spot price of natural gas as measured at the Henry Hub in Louisiana fell 6.08% for the week ending June 28 to $6.80 per million British thermal units.

Over this period, the average energy fund, excluding inverse funds that sell short energy companies, sank 2.33%.

Nine of the 10 funds on this week's worst-performing list have large holdings of stocks closely tied to oil and gas prices. Taking a more direct approach, the United States Natural Gas Fund(UNG Quote) holds futures contracts on Henry Hub natural gas. This magnified the spot price decline, blowing 10.62% off the value of the fund.

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP Quote) and the iShares Dow Jones US Oil & Gas Exploration & Production Index Fund (IEO Quote) followed their respective indices to declines of 5.65% and 5.12% respectively.

The two stocks held by both index funds that took the worst beatings were Whiting Petroleum (WLL Quote) and Cabot Oil & Gas (COG Quote). Whiting shares sank 12.55% on dilution from the issuance of 5 million new shares at $40.50. Cabot, meanwhile, lost 11.24% on heavy insider selling.

The top two spots on our best-performing energy fund list this week are held by funds that correctly bet against the Dow Jones U.S. Oil & Gas Index. The UltraShort Oil & Gas ProShares(DUG Quote) used 200% negative leverage to rise 3.99%. And the ProFunds Short Oil & Gas ProFund(SNPIX Quote) rode its inverse status to a gain of 2.42%.

Instead of natural gas, the United States Oil Fund LP(USO Quote) advanced 1.69% by using futures contracts to track the price of West Texas Intermediate Light crude oil.

Natural Gas Breaks Below $7

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Source: Bloomberg

Worst Performing Energy Funds
Fund	Ticker	Rating	Fund Type	1 Week Total Return
United States Natural Gas Fund LP	UNG	U	ETF	-10.62%
SPDR S&P Oil & Gas Exploration & Production ETF	XOP	U	ETF	-5.65%
iShares DJ US Oil & Gas Expl & Prod Index Fund	IEO	B-	ETF	-5.12%
Fidelity Select Natural Gas Portfolio	FSNGX	C	Open-End	-4.93%
First Trust ISE-Revere Natural Gas Index Fund	FCG	U	ETF	-4.67%
Ultra Oil & Gas ProShares	DIG	U	ETF	-4.48%
BlackRock Global Resources Fund	SSGRX	D+	Open-End	-3.86%
ProFunds Oil & Gas UltraSector ProFund	ENPIX	C	Open-End	-3.50%
Dreyfus Prem Opportunity Funds - Premier Nat Res	DNLAX	B-	Open-End	-3.47%
Fidelity Advisor Energy Fund	FAGNX	C+	Open-End	-3.46%
Source: Bloomberg

Three of the remaining seven funds on the list specialize in alternative energy. The Market Vectors Global Alternative Energy ETF (GEX Quote) sailed through the green light, returning 1.42% over the five trading days ending June 28.

The fund is allocated to 41.9% alternative energy sources, 30.3% electrical components and equipment, 8.4% semiconductors, 7.8% electronics, 6.7% electric, and 5.0% environmental control. Solar power was the bright spot in the portfolio with Trina Solar (TSL Quote) up 15.84%, First Solar up 12.37%, and Suntech Power Holdings up 11.51%.

Best Performing Energy Funds
Fund	Ticker	Rating	Fund Type	1 Week Total Return
UltraShort Oil & Gas ProShares	DUG	U	ETF	3.99%
ProFunds Short Oil & Gas ProFund	SNPIX	U	Open-End	2.42%
United States Oil Fund LP	USO	E-	ETF	1.69%
Market Vectors Global Alternative Energy ETF	GEX	U	ETF	1.42%
Tortoise Energy Capital Corp	TYY	B+	Closed-End	1.01%
Claymore MACROshares Oil Up Tradable Trust	UCR	U	ETF	0.96%
Calvert Global Alternative Energy Fund	CAEIX	U	Open-End	0.92%
Guinness Atkinson Funds - Alternative Energy Fund	GAAEX	U	Open-End	0.61%
ING Risk Managed Natural Resources Fund	IRR	U	Closed-End	0.26%
WisdomTree International Energy Sector Funds	DKA	U	ETF	-0.06%
Source: Bloomberg

On June 25, it was reported that the prior week's insider sales of energy stocks, as compiled by the Washington Service, amounted to $166.8 million, vs. just $22.6 million in insider buying. It must be nice to be able to dodge a selloff with inside information.

The rest of us will read the energy tea leaves in company press releases about the future prospects of BioSolar's (BSRC Quote) bio-based thin film, flexible solar cells and Nanosolar's & Scatec AS's nanotechnology solar cells.

On a much larger scale, Pacific Gas and Electric is building a 7-megawatt solar array for California to go into service by the end of 2009. If the rest of the country follows California's lead and matches its goal of 20% renewable energy by 2010, solar cell demand should continue to exceed supply.

The combined forces of conservation and alternative energy sources may further ease pricing pressure on oil and natural gas down the road.