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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some natural-gas-related stocks to your portfolio, the First Trust ISE-Revere Natural Gas Index (NYSEMKT: FCG  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The First Trust ETF's expense ratio -- its annual fee -- is 0.60%.

This ETF has performed poorly in recent years, losing to the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver. And it’s the future that counts more than the past, as well.

Why natural gas?
Energy is a critical staple, and natural gas has increasingly become an important part of the energy industry. Its recent low prices have helped spur interest in it, though that has also caused some natural-gas companies some grief. Still, the low prices won’t last forever, and there’s a lot of potential in these companies, especially as many of them expand their non-gas operations.

More than a handful of natural-gas-related companies struggled over the past year. Magnum Hunter (NASDAQOTH: MHRCQ  ) sank 44%, for example, and that actually represents a big rebound from earlier lows. It’s heavily shorted, in part due to significant debt and a substantial focus on natural gas in its operations. Some don’t appreciate its shift toward oil and liquids, though, and its diversification across several promising shale fields.

SandRidge Energy (UNKNOWN: SD.DL  ) shed 29%, fighting activist investors, and selling off some assets to raise funds and invest more in the Mississippi Lime field. Bulls are hopeful about its prospects there, while bears might not like seeing so many eggs in that one basket, and many of them see the company as still overvalued, too.

Apache (NYSE: APA  ) lost 27%, partly penalized for recent production levels that have been lower than hoped for. But that’s due to the company investing capital in projects that won’t immediately bump production much. About 11% of Apache’s revenue last year came from natural gas and, unlike some peers, it is cash-flow-positive, as well. Meanwhile, last month it hiked its dividend by a big 18%, so that it now yields 1.1% (versus 0% for many others). To some of our analysts, it seems inexpensive compared with its peers.

Devon Energy (NYSE: DVN  ) fell 20%, and has also seemed like a bargain recently. It, too, has been shifting its focus more to oil and liquids. The company has been quite impressive, paying down debt, rapidly hiking its dividend, reducing its share count, and accumulating billions in cash. Some are wary of the cash, though, hoping the company doesn’t make unwise investments with it. Devon is also looking into spinning off an MLP that might include pipelines and other facilities.

The big picture
Demand for natural gas isn’t likely to go away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Investors were startled after SandRidge plummeted when natural gas prices reached 10-year lows, but with the company focusing on growing liquids production, the future looks optimistic. If you are unsure about the future of this emerging oil and gas junior, and are looking to find out more about its strengths and weaknesses, then check out The Motley Fool's premium research report detailing SandRidge's game plan, and what to expect from the company going forward. To get started, simply click here now!

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9/26/2016 4:02 PM
APA $59.94 Down -0.08 -0.13%
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FCG $25.18 Up +0.02 +0.08%
First Trust ISE-Re… CAPS Rating: ****
MHRCQ $0.00 Down +0.00 +0.00%
Magnum Hunter Reso… CAPS Rating: **
SD.DL $0.00 Down +0.00 +0.00%
SandRidge Energy CAPS Rating: ***