Mutual funds invest in natural gas in numerous ways. As of the date of publication, at least one fund invests in a series of complicated contracts that mimic the price of natural gas on the U.S. Mercantile Exchange, while another fund invests primarily in natural gas stocks and securities. Other funds invest in energy sources that are alternatives to oil, the primary fuel in the U.S. Natural gas is considered an alternative energy, so many alternative energy funds have at least some exposure to the natural gas market.
United States Natural Gas Fund
Victoria Asset Management launched the first natural gas fund in April 2007. The fund's investment objective is to track the movement of natural gas prices. It accomplishes this goal by investing in natural gas futures contracts and in other natural gas-related futures, forwards and swap contracts. Thus, the fund invests directly in the natural gas market, rather than in stocks of natural gas-related companies. The fund has an expense ratio of 0.60 percent. Because it was created as an exchange-traded security and not a traditional fund, it is traded on the New York Stock Exchange under the ticker symbol UNG. The fund company does not charge a sales fee, but investors pay a stock commission to buy or sell shares on the exchange.
Fidelity Select Natural Gas Portfolio
The Fidelity Select Natural Gas Portfolio invests in companies that produce, transmit or distribute natural gas. Additionally, the fund purchases stocks of companies that explore for natural gas or provide services to the natural gas industry. The fund is an open-end fund, meaning it can be purchased directly from Fidelity under the symbol FSNGX. Top holdings include Anadarko Petroleum, Plains Exploration and Production, and Chesapeake Energy Corp. The expense ratio is 0.84 percent annually, and there is no sales charge to buy or sell fund shares.
Alternative Energy Open End Funds
A number of mutual funds invest in renewable- and alternative-energy producers without being exclusively devoted to natural gas. Five open-end mutual funds that invest in alternative energy are the New Alternatives Fund (NALFX), the Guinness Atkinson Alternative Energy Fund (GAAEX), the American Trust Energy Alternatives Fund (ATEAX), the Firsthand Alternative Energy Fund (ALTEX) and the Calvert Global Alternative Energy Fund (CGAEX).
Alternative Energy Exchange Traded Funds
Exchange-traded funds are generally passively managed, compared with the active management of open-end funds. While actively managed funds have portfolio managers frequently buying and selling securities in an effort to achieve superior returns, passively managed funds typically own a set portfolio and stick with it, except in special circumstances. As a result, most exchange-traded funds have lower expense ratios than open-end funds. Exchange-traded funds dedicated to alternative energy investments include the First Trust NASDAQ Clean Edge US Liquid Fund (QCLN), the PowerShares Clean Energy Fund (PBW), the PowerShares Global Clean Energy Fund (PBD), the Van Eck Alternative Energy Fund (GEX), and the iShares S&P Global Clean Energy Index ETF (ICLN).
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