The digital revolution's next frontier is consuming power at an unprecedented scale. Data centers, the beating heart of AI innovation, are now projected to use more electricity than many major cities, creating an unexpected investment opportunity in the energy sector.
Recent findings from EPRI reveal a startling reality: U.S. data center power consumption is set to double by 2030, potentially reaching 9% of the nation's total electricity generation. The math is compelling; a single ChatGPT query consumes 10 times more electricity than a traditional Google search, using 2.9 watt-hours compared to just 0.3 watt-hours.
This surge in power demand is expected to require an additional 3 to 6 billion cubic feet per day of natural gas by 2030. While tech companies have historically favored renewable energy, the 24/7 reliability demands of data centers aren't compatible with our current green energy infrastructure. Natural gas is emerging as the crucial bridge fuel, with data center developers increasingly prioritizing speed and reliability over purely renewable solutions.
For investors seeking to capitalize on this transformative trend, three energy ETFs stand out as potential vehicles to harness the growing energy demand from data centers, each offering a unique approach to power your portfolio's growth.
#1. United States Natural Gas Fund (UNG)
The United States Natural Gas Fund (UNG), managed by USCF Investments, offers a direct play on natural gas prices through its focus on futures contracts. Launched in April 2007, UNG is designed to track the daily percentage changes in natural gas prices using the Henry Hub benchmark.
The fund does not hold individual stocks, but rather focuses on the underlying natural gas futures market, offering a pure play on this volatile commodity. This strategy involves investing in near-term natural gas futures (NGF25) contracts on the NYMEX, making it an attractive option for those looking to capitalize on short-term price movements rather than long-term investments.
With managed assets totaling approximately $770 million, UNG provides straightforward exposure to the natural gas market. The fund's management fee stands at 1.11%, reflecting the high cost of maintaining its futures-based strategy.
UNG is down 35% on a year-to-date basis, tracking weakness in commodities prices.
UNG's trading volume is robust, with average daily volume of over 9 million shares, providing ample liquidity for those interested in trading this ETF. Additionally, UNG has a relatively active options market for those who prefer puts and calls.
#2. First Trust Natural Gas ETF (FCG)
The First Trust Natural Gas ETF (FCG), managed by First Trust Portfolios, provides a diversified approach to investing in the natural gas sector. Launched in May 2007, FCG tracks the ISE-Revere Natural Gas Index, focusing on companies engaged in natural gas exploration and production.
This ETF employs an equal-weighted strategy, ensuring balanced exposure across its holdings and reducing the risk associated with any single company.
FCG's portfolio is robust, with managed assets of approximately $429 million. The fund's management fee is a competitive 0.60%, making it an attractive option for those looking to invest in the energy sector without incurring high costs.
On the charts, FCG has managed a modest year-to-date gain of 6.3%.
FCG's strategic focus on exploration and production companies allows it to benefit from rising natural gas prices while providing diversification across multiple industry leaders. The fund's top holdings include EQT Corp (EQT) at 5.08%; Western Midstream Partners (WES) at 4.51%; Hess Midstream Partners (HESM) at 4.38%; EOG Resources (EOG) at 4.33%; and Expand Energy Corp (EXE) at 4.13%. These companies are integral players in the midstream energy and natural gas industry, contributing significantly to FCG's overall performance.
FCG also offers an annualized dividend of $0.78, translating to a yield of 3.00%, which provides an additional income stream for holders of this ETF. With an average daily trading volume of approximately 312,000 shares, FCG offers decent liquidity for those interested in entering or exiting positions.
#3. Goldman Sachs North American Pipelines & Power ETF (GPOW)
The Goldman Sachs North American Pipelines & Power Equity ETF (GPOW) is a relatively new entrant in the energy ETF space, having launched in July 2023. Managed by Goldman Sachs, GPOW targets companies within the United States and Canada that operate in the midstream energy sector, LPG distribution, and oil and gas transportation infrastructure. By tracking the Solactive Energy Infrastructure Enhanced Index, this fund provides focused exposure to key players in the energy infrastructure domain.
Despite its recent inception, GPOW has shown impressive performance metrics. The fund is up 33% on a YTD basis, easily outperforming the broader energy sector.
GPOW's portfolio is concentrated, with its top 10 holdings comprising 56.74% of its total assets. The top five holdings include ONEOK Inc (OKE) at 8.21%; Targa Resources Corp (TRGP) at 7.66%; Cheniere Energy Inc (LNG) at 6.17%; Kinder Morgan Inc (KMI) at 6.06%; and Williams Cos Inc (WMB) at 5.89%. These companies are pivotal in the energy infrastructure sector, contributing significantly to GPOW's performance.
The fund manages assets totaling approximately $11.35 million, with its management fee set at a competitive 0.55%. GPOW also offers an annualized dividend of $1.54, yielding 2.72%, which can appeal to those seeking income alongside capital appreciation.
However, investors should note that GPOW has very light trading volume, averaging around 3,000 shares daily, which means bid/ask spreads can be wide. This means investors should set entries and exits carefully, and practice patience when waiting to be filled.
Nonetheless, for those looking to invest in energy infrastructure with a focus on pipelines and power companies, GPOW presents an intriguing option that aligns well with current market dynamics and energy demands.
Conclusion
As data centers - and their voracious appetite for power - continue to proliferate, these three ETFs offer distinct approaches to tap into the expected surge in natural gas demand. UNG provides direct exposure to gas prices, FCG offers a balanced mix of energy companies, and GPOW focuses on infrastructure plays. While each carries its own risk profile and trading characteristics, they all stand to benefit from the growing gap between data center power demands and renewable energy capacity.
