Is First Trust Natural Gas ETF (FCG) a Strong ETF Right Now?
Designed to provide broad exposure to the Energy ETFs category of the market, the First Trust Natural Gas ETF (FCG) is a smart beta exchange traded fund launched on 05/08/2007.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
Managed by First Trust Advisors, FCG has amassed assets over $1.04 billion, making it one of the larger ETFs in the Energy ETFs. 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
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Annual operating expenses for FCG are 0.60%, which makes it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 2.33%.
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.
For FCG, it has heaviest allocation in the Energy sector --about 98.30% of the portfolio.
When you look at individual holdings, Western Midstream Partners Lp (WES) accounts for about 5.12% of the fund's total assets, followed by Dcp Midstream, Lp (DCP) and Hess Midstream Lp (class A) (HESM).
The top 10 holdings account for about 38.12% of total assets under management.
Performance and Risk
The ETF has added roughly 55.55% and was up about 50.01% so far this year and in the past one year (as of 11/28/2022), respectively. FCG has traded between $16.22 and $30.82 during this last 52-week period.
The fund has a beta of 2 and standard deviation of 53.96% for the trailing three-year period, which makes FCG a high risk choice in this particular space. With about 50 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Natural Gas ETF is an excellent option for investors seeking to outperform the Energy ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
First Trust Natural Gas ETF (FCG): ETF Research Reports
Western Midstream Partners, LP (WES) : Free Stock Analysis Report
DCP Midstream Partners, LP (DCP) : Free Stock Analysis Report
Hess Midstream Partners LP (HESM) : Free Stock Analysis Report
