Take the Sting Out of Rising Energy Prices with ETFs
December 17th 2007 at 1:00am by Tom Lydon
Do you cry whenever you fill up your car? Do you cringe as you slide the letter opener through your gas bill and wonder what the damage is this month? Buck up — it doesn’t have to be this way, you know: you can easily hedge rising energy prices with exchange traded funds (ETFs).
Since the birth of ETFs, access to the commodities sector has become easier for individual investors, says Rich White of Investopedia. By buying just one share of the U.S. Oil Fund (USO), for example, you’re getting exposure equal to roughly one barrel of oil. That’s no small potatoes these days. Another advantage to energy ETFs is that you can own the commodity without racking up the costs associated with storage and transport.
White cites other reasons for investing in energy commodities:
- Energy’s value is recognized the world over, and it has nothing to do with any nation’s economy or currency.
- The demand for energy is going to grow as emerging markets such as China and India continue to head toward industrialization.
- Energy is one of the few commodities that have consistently had a low correlation with U.S. stocks.
- Historically, energy commodities have traded in backwardation (unlike many other futures contracts, which have typically traded in contango).
Aside from USO, there are a number of energy ETFs to choose from, such as:
- First Trust ISE-Rever Natural Gas (FCG)
- PowerShares DB Commodity Index Tracking Fund (DBC)
- iShares S&P GSCI Commodity Index Trust (GSG)
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.