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Natural Resources for Mutual Funds

Original post by D. Laverne O'Neal of Demand Media

Some mutual funds invest in stocks, bonds or a mix of the two. Natural resources – typically any substance of industrial value that can be extracted from the earth – may also attract interest from mutual funds and can be lucrative investments. In fact, some energy-focused mutual funds invest heavily in natural resources, especially uranium, copper, oil and natural gas.

Uranium

Mutual funds focused on uranium may invest in other energy-related holdings as well. Demand for uranium is increasing as nuclear energy development ramps up in Russia, China and other emerging countries. Additionally, as of 2012, uranium is extracted from only 10 sites in the world. Mutual funds often invest in companies that mine the resource or manufacture equipment used in mining and processing uranium.

Copper

Although copper is not considered a “precious” metal, it is widely used in industrial applications. Common uses include plumbing and electrical systems; copper is even in manufacturing the Apple iPad. Mutual funds that invest in copper holdings may diversify into other precious metals as well, such as gold and silver. When considering a mutual fund that invests in copper, look at global trends. For example, according to Bloomberg Businessweek, demand for copper rose in early 2011, fueled by a rural construction boom in China.

Natural Gas

Mutual funds may invest in energy companies that extract, refine or process natural gas. Natural gas prices are volatile, however, which makes investing in this commodity risky. In fact, sometimes the value of natural gas or oil will rise while the value of the mutual fund itself decreases. This event, called "contango," is not healthy and can lead to losses. Because oil and gas prices don’t necessarily follow the same trajectory, a fund that includes holdings in both may provide some peace of mind.

Oil

Mutual funds that invest in oil may also have other energy-related holdings, such as natural gas. Fund investments may include companies large and small that extract and refine oil. Some oil mutual funds hold interests in companies around the world, providing diversity and a hedge in the event that political conditions in unstable oil-producing nations shift.

                   

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About the Author

D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, health, personal finance and personal growth.

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