Is First Trust Natural Gas ETF (FCG) a Strong ETF Right Now?
Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Natural Gas ETF (FCG) provides investors broad exposure to the Energy ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
Because the fund has amassed over $354.02 million, this makes it one of the average sized ETFs in the Energy ETFs. FCG is managed by First Trust Advisors. FCG seeks to match the performance of the ISE-REVERE Natural Gas Index before fees and expenses.
The ISE-Revere Natural Gas Index is an equal-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas.
Cost & Other Expenses
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Annual operating expenses for FCG are 0.60%, which makes it on par with most peer products in the space.
FCG's 12-month trailing dividend yield is 3.25%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
Representing 97.80% of the portfolio, the fund has heaviest allocation to the Energy sector.
Looking at individual holdings, Western Midstream Partners Lp (WES) accounts for about 4.67% of total assets, followed by Hess Midstream Lp (class A) (HESM) and Conocophillips (COP).
Its top 10 holdings account for approximately 41.35% of FCG's total assets under management.
Performance and Risk
Year-to-date, the First Trust Natural Gas ETF return is roughly 0.69% so far, and is down about -7.30% over the last 12 months (as of 11/06/2024). FCG has traded between $22.62 and $28.34 in this past 52-week period.
The fund has a beta of 1.79 and standard deviation of 33.53% for the trailing three-year period, which makes FCG a high risk choice in this particular space. With about 45 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Natural Gas ETF is a reasonable option for investors seeking to outperform the Energy ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Range Global LNG Ecosystem Index ETF (LNGZ) tracks RANGE GLOBAL LNG ECOSYSTEM INDEX and the Roundhill Alerian LNG ETF (LNGG) tracks ALERIAN LIQUEFIED NATURAL GAS INDEX. Range Global LNG Ecosystem Index ETF has $0.54 million in assets, Roundhill Alerian LNG ETF has $1.23 million. LNGZ has an expense ratio of 0.85% and LNGG charges 0.65%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Energy ETFs.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Get it free >>First Trust Natural Gas ETF (FCG): ETF Research Reports
ConocoPhillips (COP) : Free Stock Analysis Report
Western Midstream Partners, LP (WES) : Free Stock Analysis Report
Hess Midstream Partners LP (HESM) : Free Stock Analysis Report
Roundhill Alerian LNG ETF (LNGG): ETF Research Reports
Range Global LNG Ecosystem Index ETF (LNGZ): ETF Research Reports
