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2 Natural Gas Funds to Watch

Stocks in this article: UNG FCG FSNGX CHK BP RDS.A

NEW YORK ( TheStreet) -- A number of companies both domestic and international are looking for ways to increase their exposure to the U.S. natural gas industry. Investors have a chance to get involved in this industry through a number of different avenues.

Picking which is best, however requires a careful eye.

An uptick in activity put the Texas Eagle Ford shale formation in the spotlight this week. Norwegian energy firm Statoil (STO) (STO) and Talisman Energy (TLM) announced a joint venture, while China's state-owned energy goliath CNOOC (CEO) said it would spend over $2 billion to acquire a portion of Chesapeake Energy's (CHK) stake in the region. CNOOC's deal marks that largest ever Chinese purchase of U.S. energy assets.

Two Funds Harness Natural Gas Potential

In the near term, winter is approaching quickly and natural gas prices could see an uptick as consumers crank up their thermostats to battle bitterly cold weather.

However, deals such as CNOOC's strengthen the industry's prospects for the longer term as well. As China and other emerging nations continue to develop at a rapid pace, it will become increasingly essential to look abroad for ways to quench their economies' near insatiable appetites for energy.

If CNOOC's foray into the U.S. shale industry is the start of a longer trend of foreign nations looking to North America as an important energy source, it could be a source for strength for natural gas producers.

Rather than using the troubled United States Natural Gas Fund (UNG) to satisfy their natural gas fix, investors can invest in the growing interest in this industry using one of two products: the First Trust ISE Revere Natural Gas Fund (FCG) or the Fidelity Select Natural Gas Fund (FSNGX).

Both FCG and FSNGX provide investors with exposure to a diverse basket of companies heavily involved in the production of natural gas. While their goals are similar, the two funds have differences which make them appealing to two separate audiences.

Most noticeably are the differences between the two indexes. While both FCG's and FSNGX's underlying holdings include household natural gas names such as Chesapeake, FCG appears to dedicate an interestingly large amount of its portfolio to integrated oil majors. Meanwhile, FSNGX can be considered more of a pure play in natural gas production.

This summer, I highlighted FCG's dedication to oil majors after noticing that ExxonMobil (XOM) accounted for a surprisingly large slice of the fund's index after purchasing XTO's natural gas business. The fund's index has since been rebalanced and Exxon's position has been decreased considerably. However, the fund continues to boast heavy exposure to diversified energy conglomerates.

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