Natural gas exchange-traded funds (ETFs) provide investors with exposure to natural gas prices while avoiding both the complexities of trading natural gas futures contracts and the storage costs to hold the physical commodity. Natural gas is a commodity used as a source of energy for heating, cooking, fuel, and electricity generation. It also is used in the manufacture of plastics and other organic chemicals. The price of natural gas rises and falls according to fluctuations in supply and demand.

Key Takeaways

  • Natural gas prices have risen 8.8% over the past year.
  • The three natural gas ETFs, as ranked by 1-year trailing total return, are UNL, UNG, and GAZ.
  • All three of these ETFs hold natural gas futures contracts to gain exposure to natural gas prices.

The natural gas ETF universe is comprised of 3 ETFs, excluding inverse and leveraged ETFs. Natural gas prices have risen 8.8% over the past 12 months compared to the S&P 500's total return of 22.3%.  The best natural gas ETF, based on performance over the past year, is the United States 12 Month Natural Gas Fund (UNL). We examine the three natural gas ETFs below. All numbers in this story are as of September 1, 2020.

ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs which can negate some of your investment gains or increase your losses.

United States 12 Month Natural Gas Fund (UNL)

  • Performance over 1-Year: 2.2%
  • Expense Ratio: 0.90%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 21,947
  • Assets Under Management: $6.7 million
  • Inception Date: November 18, 2009
  • Issuer: USCF

UNL is structured as a commodity pool, a private investment structure that pools investor contributions in order to trade futures and options in commodities. The fund holds natural gas futures contracts in order to gain long exposure to natural gas prices. It diversifies its holdings across multiple maturities to mitigate the adverse impact of contango. The ETF may be appealing to investors as a hedge against inflation. 

United States Natural Gas Fund (UNG)

  • Performance over 1-Year: -28.5%
  • Expense Ratio: 1.28%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 5,828,571
  • Assets Under Management: $361.5 million
  • Inception Date: April 18, 2007
  • Issuer: USCF

UNG is also structured as a commodity pool, offering exposure to natural gas prices by holding natural gas futures contracts. Unlike UNL, however, this ETF is not as diversified, investing in futures contracts set to expire within the next month. This means the fund is more exposed to the adverse impacts of contango and is thus more appropriate for traders with a short-term strategy. But it is also considered as an appealing inflation hedge. 

iPath Series B Bloomberg Natural Gas Subindex Total Return ETN (GAZ)

  • Performance over 1-Year: -31.5%
  • Expense Ratio: 0.45%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 5,294
  • Assets Under Management: $3.6 million
  • Inception Date: March 8, 2017
  • Issuer: Barclays Capital

GAZ is structured as an exchange-traded note (ETN), a type of unsecured debt security that does not make interest payments and has stock-like characteristics. The fund tracks the Dow Jones-UBS Natural Gas Subindex Total Return, and provides exposure to natural gas prices through the holding of natural gas futures contracts. It is designed for investors with a short-term investment horizon, rather than as part of a buy-and-hold strategy.