Investing in Natural Gas Mutual Funds
It is a popular belief that the price of natural gas will rise over the coming years. This is mainly due to rapidly increasing demand for energy, which again is largely because of economic growth in China and India, but also because of various limitations on the supply of other sources of energy, such as oil, coal, and nuclear energy.
Investors might therefore be very interested in finding ways to bet on rising natural gas prices.
Natural Gas ETFs
One such way is investing in a natural gas ETF 2X. Most often, these ETFs will attempt to track the price of natural gas using futures contracts. This has certain drawbacks. Depending if the futures market is in contango or backwardation can effect returns. Trading in futures is very complicated; due to technical reasons the value of these ETFs can be volatile and the tracking of the price can lag.
Investing in Gas Producers
A significant rise in the natural gas price will tend to result in the value of firms producing natural gas increasing more than the actual price of the commodity. Thus, if you suspect increasing natural gas prices, investing in stocks of gas producers makes all the sense in the world.
However, investing in just one firm is risky. The value of the stock will depend on numerous other things; shocks can result in the stock not reflecting the price of natural gas at all. The solution is fairly obvious, invest in numerous gas producers.
Natural Gas Mutual Funds
A number of natural gas mutual funds invest heavily in natural gas producers. One such notable mutual fund is Fidelity Select Natural Gas. The fund owns stocks of more than 70 gas producers, including most of the major players.
If you suspect surging natural gas prices, natural gas mutual funds owning stocks in gas producers might just be your best bet!
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Tags: natural gas ETF 2X, Natural Gas ETFs, natural gas mutual funds
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