Traditional Energy Funds Versus Clean Energy Funds
The energy sector is big. Very big. And with the world’s two most populous countries showing strong growth, it appears the thirst for energy will only increase.
In such a huge sector, the ways to invest is naturally numerous. Whatever your preference and needs, you should be able to find something that fits. You can invest in futures contracts, individual oil companies, natural gas ETFs, or broad natural gas stocks ETF. It is all up to you to do the research and find out what is right for you.
Here we will look at two classes of energy mutual funds, those investing in the traditional energy sector and those investing in the renewable energy sector.
Traditional Energy Mutual Funds
Traditional funds broadly invest in a large cross-section of companies involved in the oil and natural gas business. This includes companies manufacturing equipment, and companies producing, exploring, or transporting oil and gas.
Many funds focus on large-cap companies and are thus considered relatively low risk. Funds that invest in smaller-cap companies tend to see larger swings, but does offer the chance of a higher return on investment, since the value of smaller firms will rise more, than the equivalent larger firm, if the price of the relevant commodity increases.
Different funds follow different strategies and you need to decide what is right for you.
Clean Energy Mutual Funds
A sector gaining increased attention is the clean energy sector. With the focus on issues like global warming and the dependency on unstable oil producing countries, finding clean energy sources, like wind and solar power, has naturally come to the forefront.
But what does investing in a renewable energy fund entail? Since this is a relatively new sector, most firms are in the early stages. Investing in such small-cap companies is considered riskier than large traditional energy companies.
However, some view renewable energy as the future of the energy sector, as such, maybe this is the right time to jump onto the bandwagon?
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