One of the constant headlines over the last few months has been Russia and the Ukraine Crisis. Since the conflict began, it’s been a battle between good news and bad — with each subsequently pulling the market in either direction.
Well, it seems like the Ukraine Crisis is about to take another turn for the worse.
After feeling the heat from various economic sanctions, Russia has decided to turn up the heat on the Ukraine crisis and European Union by turning down the thermostat. Reports have surfaced that Russia is going to turn off Europe’s natural gas supplies … just in time for the cold winter to set in.
If true, t hat shutoff would be a major issue, as Europe stills relies on Russian natural gas for the vast majority of its energy needs. In fact, there are six E.U. member nations that are 100% dependent on Russian natural gas.
This isn’t the first time Russia has pulled the natural gas card. It turned off the spigot this past June as well as in 2006 and 2009. All three times, the move lead to transit spats and supply disruptions in the Old Country. All in all, the Ukraine Crisis continues to unfold and moves towards becoming a catastrophic conflict.
But investors don’t need to sit idly, watching the conflict wreck your portfolios. In fact, there are a few exchange-traded funds that should see their businesses improve if Russia goes through with the threat. Here are 3 ETFs you can use to keep your porftolio strong amid the Ukraine crisis.
ETFs for the Ukraine Crisis — United States Natural Gas ETF (UNG)
The heart of the Ukraine Crisis is natural gas. Any disruption in service from Russia to Europe will ultimately spike prices.
Prices for natural gas futures for delivery in the U.K. have already risen about 17% over the last few weeks as the Ukraine Crisis has intensified. The last time Russia stopped gas in January 2009, prices for same-day-delivery increased 27% in one day. That jump was on top of steady increases in price leading up to the official stoppage.
All of this makes the United States Natural Gas ETF (UNG) an interesting buy.
UNG tracks natural gas prices by investing in the current forward and futures contracts for the fuel traded on the NYMEX. The ETF may also invest in forward and swap contracts tied to natural gas. Over the longer term, UNG has been a dog on the performance front, suffering from futures contango. However, it has been one heck of a trading element for investors looking to cash in on the short-term movements of natural gas prices.
And given the potential for higher natural gas price spikes due to the Ukraine Crisis, investors looking to be opportunistic should give UNG a go. Expenses for the fund run 0.60% — or $60 per $10,000 invested — and investors will get a K-1 statement come tax time.
The Ukraine Crisis ETFs — ProShares UltraShort FTSE Europe ETF (EPV)
It stands to reason that if Europe can’t get any gas due to the Ukraine Crisis, things will get dicey for the already fragile European economy. In the short-to-medium run, that could mean that European equities are ripe for a fall.
If so, the ProShares UltraShort FTSE Europe ETF (EPV) might make a great tactical play.
The fund is leveraged inverse ETF — meaning it shorts stocks with extra “oomph”. In this case EPV, promises to pay 2x the inverse of the daily performance of the FTSE Developed Europe Index. That underlying index tracks equities in Europe’s 16 largest developed nations. As European stocks fall, EPV should gain. (Of course, if they don’t, you’re stuck with double the losses.)
Leveraged ETFs get a bad rap, but instances where you’re looking to make the most out of a situation in a short amount of time they can be great. The Ukraine Crisis is prime opportunity to use them and EPV is the best way to do that. Costs to own EPV are expensive at 0.95%. However, this isn’t a buy-and-hold kind of fund.
The Ukraine Crisis ETFs — iShares US Energy ETF (IYE)
The stocks that can protect you best from the Ukraine Crisis can be found right here in the good ol’ U.S. of A. More specifically, we’re talking about American energy stocks. If there is one thing that stands out of the crisis, it’s that Europe needs to diversify its energy mix and where it gets its supplies from. And the United States will be the continent’s primary go-to destination.
Oil & liquefied natural gas (LNG) exports are on the horizon, while fracking & horizontal drilling continue to unearth an ocean of energy. All in all, the U.S. is quickly moving to be the driver of the world’s energy needs.
For investors, that means betting on the iShares US Energy ETF (IYE) in a big way.
The fund has $2.2 billion in net assets and tracks 87 different U.S.-based energy stocks — including stalwarts like Exxon (XOM) and smaller frackers like Concho Resources (CXO). The ETF also includes oil service and refining names, making IYE a great overall fund for investors.
The beauty of the play is that it can be a tactical position as the Ukraine Crisis unfolds — rising oil & natural prices will boost shares of the underlying stocks. And IYE will be great over the longer term as well — especially when Europe gets serious about diversifying its supplies.
And with an expense ratio of just 0.43%, IYE makes great buy-and-hold fund for either situation.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.