A Natural Gas ETF That Works

The regulatory uncertainty facing the United States Natural Gas ETF (UNG) continues to present a compelling reason why investors looking to gain exposure to natural gas should choose the First Trust ISE-Revere Natural Gas Index Fund(FCG) instead.

For more information on this subject, check on my article on "A Natural-Gas ETF With Fewer Headaches" in RealMoney.com.

For the month ending July 17, FCG rose 0.12% while UNG fell 12.60%. More recently, UNG rose 10.14% for the week ending July 17 while FCG rose 12.57%.

FCG tracks a basket of exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas. FCG ranks natural gas companies according to P/E ratio, Price/Book ratio, Return on Equity and the correlation to gas futures prices. The fund's methodology is also designed to ward off illiquid companies with market caps that do not meet the standard.

UNG is a complex, non-traditional ETF that is designed for sophisticated investors. There are three compelling reasons why "regular" investors should consider FCG instead of UNG:

Structure: UNG tracks a basket of natural gas futures contracts and swaps. Each month current underlying futures expire and the fund must "roll" the contracts into the next month. This process can cause the fund to deviate from its net asset value (NAV). See my earlier article on "Nat-Gas ETFs and Contango"

FCG, on the other hand, is a traditional ETF that tracks a basket of stocks. FCG can be easily hedged, and is more likely to reflect what it's worth. See my article on "Hedging Your ETF Bets."