The First Trust Natural Gas ETF (FCG – Free Report) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Energy ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
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.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
Because the fund has amassed over $411.41 million, this makes it one of the larger ETFs in the Energy ETFs. FCG is managed by First Trust Advisors. Before fees and expenses, FCG seeks to match the performance of the ISE-REVERE Natural Gas Index.
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
When considering an ETF’s total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.60%.
It’s 12-month trailing dividend yield comes in at 2.70%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund’s holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
For FCG, it has heaviest allocation in the Energy sector –about 98% of the portfolio.
Taking into account individual holdings, Eqt Corporation (EQT – Free Report) accounts for about 5.17% of the fund’s total assets, followed by Western Midstream Partners Lp (WES – Free Report) and Hess Midstream Lp (class A) (HESM – Free Report) .
The top 10 holdings account for about 41.74% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Natural Gas ETF has gained about 2.23% so far, and it’s up approximately 4.86% over the last 12 months (as of 01/06/2025). FCG has traded between $22.62 and $28.34 in this past 52-week period.
The ETF has a beta of 1.79 and standard deviation of 32.45% for the trailing three-year period, making it a high risk choice in the space. With about 44 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 – Free Report) tracks RANGE GLOBAL LNG ECOSYSTEM INDEX. The fund has $1.19 million in assets. LNGZ has an expense ratio of 0.85%.
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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