Saturday, December 7, 2013

Riding the Natural gas bull:

A clip from the Getting Technical market letter - Interim Update December 6, 2013 on natural gas: “Colder weather helped raise the price of the front-month natural gas futures contract, which has increased on ten consecutive trading days from November 19 to December 4. This has pushed near CME contract above the February through June 2014 contracts suggesting a short term over-bought condition. However, demand for natural gas could become significantly higher in December and January, when natural gas demand for residential and commercial heating increases. In any event – money is flowing into the natural gas producers – we should have some exposure” (see selections)

How not to play the natural gas bull: According the Horizons, “The Investment Objective of The Horizons BetaPro NYMEX Natural Gas Bull+ ETF (HNU) and the Horizons BetaPro NYMEX Natural Gas Bear+ ETF seek daily investment results equal to 200% the daily performance, or inverse daily performance, of the NYMEX Natural Gas futures contract for the next delivery month. The HBP NYMEX Natural Gas Bull+ and Bear+ ETFs are denominated in Canadian dollars, as the US dollar exposure of the underlying index is hedged daily.” (All that work for a management fee of just 1.15%).

Our natural gas vs. HNU chart sets out the returns from the Feb 17, 2012 peak to date with the upper plot up by 44% and the lower plot down by 41%

YTD through October the HNU has returned a negative (20.6%). The continual NYMEX Natural Gas contract has returned a positive 6% and the equity related BMO Junior Gas Index ETF (ZJN) has returned a positive 37%.

How to play the natural gas bull: If you’re bullish on the outlook for natural gas go with the BMO ZJN or do some stock picking among a basket of the gassy producers.

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