A Natural Gas Fund Worth Your Attention

05/24/2012 11:15 am EST

Focus: FUNDS

Stephen Leeb

Founder and Research Chairman, Leeb Group

Natural gas prices may be low now, but eventually they will move higher as industry and consumers begin to convert to this energy source from more expensive and dirtier ones. So now is the time to buy in and collect some nice yields along the way, writes Stephen Leeb of Leeb Income Performance.

What’s in a name? Everything, when it comes to our current mutual fund recommendation. The FBR Gas Utility Index Investors Fund (GASFX), despite its somewhat cumbersome name, is a great find and an income pick we are really excited about.
 
The name is truly descriptive: it’s an index fund that invests in publicly traded companies that are members of the American Gas Association (AGA), tracking the total return of the AGA Stock Index.

This index is market cap-weighted, but adjusted for the percentage of natural gas assets on each company’s balance sheet, with no company being greater than 5% of total assets, and is reset monthly or whenever a qualifying event, such as a merger or acquisition or capital restructuring, occurs.

And don’t let the record-low price of natural gas keep you away from this fund: its portfolio is mostly dedicated to gas distribution stocks, which benefit from record demand, and there are several MLPs among its top positions. In addition, the fund’s long-term record also speaks volumes about its potential. Its low turnover and low volatility are further positives.

The fund’s long-term record of capturing the market upside/downside is outstanding: over the past ten years, about 98.6% of the market’s upside and only 71.6% of the downside was captured, resulting in sector-and market-beating gains.

This no-load five-star-rated utilities fund joins our Mutual Funds portfolio with a strong buy rating.

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