When we think of the energy industry, we often look to commodities like oil. But have you ever thought of investing in natural gas ETFs or stocks?
Natural gas is quickly becoming the most widely used energy source in North America. It is used to heat buildings and produce power. It is also the cleanest burning fossil fuel, and the Earth has an abundance of it.
Investing in natural gas ETFs is a great way to add exposure to the Canadian natural gas industry. Many investors will buy these ETFs, anticipating that the price and value of natural gas will continue to rise.
These natural gas ETFs and stocks can provide great stability for your portfolio as well as pay a decently generous dividend as well.
In this article, I will cover the 5 best natural gas ETFs in Canada for September 2024.
What is a Natural Gas ETF?
While natural gas ETFs aren’t as common on the TSX in Canada, there are several that trade on US-domiciled exchanges.
These ETFs provide great exposure to natural gas companies and allow you to hold various natural gas stocks.
It is anticipated that natural gas will surpass oil demand over the next decade and will be the perfect transition toward the world adopting clean and renewable energies.
Here are the 5 top natural gas ETFs that I will be discussing in this article:
- Horizons Natural Gas ETF (TSE: HUN)
- United States Natural Gas Fund, LP (NYSEARCA: UNG)
- BMO Equal Weight Oil & Gas Index ETF (TSE: ZEO)
- Horizons Pipelines and Energy Services Index ETF (TSE: HOG)
- First Trust Natural Gas ETF (NYSEARCA: FCG)
Best Natural Gas ETFs in Canada
1. Horizons Natural Gas ETF (TSE:HUN)
Here are some key facts for HUN:
- Number of Holdings: 1
- Inception Date: June 24, 2009
- MER: 0.88%
- Distribution yield: N/A
- 5-Year Performance: 15.77%
HUN is the Horizons natural gas ETF established in 2009 and trades on the Toronto Stock Exchange.
This ETF exclusively holds futures contracts for the natural gas commodity. Specifically, HUN holds the Winter quarter rolling futures that are rolled once annually in November.
Horizons ETFs has created some variations of the HUN ETF. These include the BetaPro Natural Gas Inverse Leveraged Bear Daily ETF (TSE:HND) and the BetaPro Natural Gas Leveraged Daily Bull ETF (TSE:HNU).
2. United States Natural Gas Fund, LP (NYSEARCA:UNG)
Here are some key facts for UNG:
- Number of Holdings: 1
- Inception Date: April 18, 2007
- MER: 1.11%
- Distribution yield: N/A
- 5-Year Performance: -9.57%
UNG is an ETF that is issued by the United States Commodity Funds, LLC and trades on the US-domiciled NYSEARCA exchange.
This ETF also tracks the price of natural gas futures contracts which roll once per month for a total of twelve times per year.
It offers one of the purest and most accurate ways to invest in natural gas, although it does carry a higher MER than most other funds on this list.
3. BMO Equal Weight Oil & Gas Index ETF (TSE:ZEO)
Here are some key facts for ZEO:
- Number of Holdings: 11
- Inception Date: October 20, 2009
- MER: 0.61%
- Distribution yield: 4.70%
- 5-Year Performance: 9.13%
ZEO is a natural gas ETF from BMO Global Asset Management. It was established in 2009 and trades on the TSX.
This ETF provides exposure to Canadian natural gas providers. The three largest holdings are Tourmaline Oil Corp (TSE:TOU), Cenovus Energy, Inc (TSE:CVE), and Arc Resources LTD (TSE:ARX).
It gives shareholders a decent average annualized dividend yield of 3.48%, paid out every quarter.
4. Horizons Pipelines and Energy Services Index ETF (TSE: HOG)
Here are some key facts for HOG.TO:
- Number of Holdings: 12
- Inception Date: July 14, 2014
- MER: 0.64%
- Distribution yield: 3.49%
- 5-Year Performance: 6.80%
HOG.TO is the second Horizons ETF on this list. This fund was founded in July 2014 and tracks both the oil and gas pipelines and services industry in Canada.
It is an all-equity ETF which means it holds all Canadian stocks. The largest holdings by weighted allocation are Parkland Fuel Corp (TSE: PKI) and Pembina Pipeline Corporation (TSE: PPL).
The ETF provides a nice diversification of holdings and pays out a 3.49% dividend yield that it pays out quarterly to shareholders.
5. First Trust Natural Gas ETF (NYSEARCA:FCG)
Here are some key facts for FCG:
- Number of Holdings: 48
- Inception Date: May 8, 2007
- MER: 0.61%
- Distribution yield: 30-day SEC Yield of 2.98%
- 5-Year Performance: 5.70%
FCG is a natural gas ETF issued by First Trust that was established in 2007 and trades on the US-domiciled NYSEARCA exchange.
This fund holds 49 different natural gas stocks. The largest held stocks are DCP Midstream LP Unit (NYSE:DCP), Western Midstream Partners LP (NYSE:WES), and Hess Midstream LP (NYSE:HESM).
FCG pays a 30-day SEC Yield of 2.98% to shareholders and provides excellent diversified exposure to the US natural gas and energy industry.
How to Buy Natural Gas ETFs in Canada in 2024
If you want to invest in natural gas ETFs in Canada, I recommend doing so on a discount brokerage where you can save on trading fees. Here are a few of my favourites for Canadian investors.
Questrade
Questrade is Canada’s oldest and most widely used independent discount brokerage. Stocks can be bought for as low as $0.01 per share, but buying natural gas ETFs is completely free at this brokerage.
Questrade
Trade stocks, ETFs, options, FX, bonds, CFDs, mutual funds, etc.
Get $50 trade credit with $250 funding
Low and competitive trading fees
No quarterly inactivity fees
Access to advanced tools and trading data
Top platform for advanced traders
Transfer fees waived
Wealthsimple Trade
A financial platform that is gaining popularity across Canada, Wealthsimple Trade supports zero-commission trading. This means Canadian investors pay no trading fees whether buying or selling natural gas ETFs.
Wealthsimple Trade
Trade stocks, ETFs, and options
Excellent trading platform for beginners
Access to various products and accounts
Transfer fees waived up to $150
Are Natural Gas ETFs a Good Investment?
Natural gas ETFs in Canada provide investors with exposure to an oft-overlooked area of the energy industry.
As natural gas usage increases, so too should the value of these companies. Investing in natural gas ETFs provides a nice basket approach to this emerging industry.
With that being said, this article is not meant to be any sort of financial advice but rather an introduction to investing in the Canadian natural gas ETF sector.
Downsides of Natural Gas ETFs
As you can see by the performance of the listed ETFs, price performance can vary. This is because the price of these stocks and ETFs rely on the underlying price of natural gas itself.
Another downside is that there simply are not a lot of options when it comes to Canadian natural gas ETFs. You will likely have to buy one that trades on a US-domiciled market, which means paying foreign exchange fees.
Even still, a majority of natural gas ETFs only provide exposure to natural gas futures contracts, when many investors prefer to invest in company stocks.
Top Natural Gas Stocks
If you are the type of investor who likes to look at individual stocks, here is a list of 10 top natural gas stocks in Canada to consider:
- Tourmaline Oil (TSE:TOU)
- Ovintiv (TSE:OVV)
- Enbridge Inc (TSE:ENB)
- Suncor Energy Inc (TSE:SU)
- Imperial Oil Ltd. (TSE:IMO)
- Cenovus Energy Inc (TSE:CVE)
- TC Pipelines LP (TSE:TRP)
- Pembina Pipeline Corp (TSE:PPL)
- Fortis Inc (TSE:FTS)
- AltaGas (TSE:ALA)
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FAQs
It depends on what you are looking to invest in. For exposure to natural gas stocks, the BMO Equal Weight Oil & Gas Index ETF (TSE:ZEO) is the best for Canadian investors. If you are looking for futures contracts, then the Horizons Natural Gas ETF (TSE:HUN) is my recommendation.
In terms of Canadian natural gas companies, the largest company is Enbridge Inc (TSE:ENB) with a market capitalization of about $105 billion CAD.
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