A Brief Overview: 2 Ways to Invest in Biofuels

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As time goes on, more people are starting to realize the benefits of alternative energy investing. One of these alternative energy sectors includes the biofuel market which is still new but is developing at a rapid rate. Though some biofuels are made from commodities such as sugar, starch, and vegetable oil, the majority of biofuel consists of a range of fuels that are created from renewable energy sources or biomass.

Since biofuels are not exchangeable (this would have allowed for large scale trading and assimilation into global financial markets), this sector is considered to be a non-traditional commodity. That said, interest in renewable fuel sources is increasing, therefore, the biofuel sector is connected to traditional commodities such as crude oil and natural gas.

As mentioned, the biofuels market is considerably new and is still developing. This means that the options for investing in this sector are limited. With that in mind, there are a few choices for those interested, such as an ETN connected to a biofuels index.

Investing in Biofuels

Currently, there are two ways to invest in biofuels and that is through exchange-traded funds and stocks.

Biofuel ETFs: What Are They?

For those who are interested in alternative energy investments and are looking to gain exposure to the biofuel sector, you are able to do so while enjoying numerous benefits of the exchange-traded structure. For instance, the ELEMENTS MLCX Biofuels Index ETN ($FUE) is connected to an index which acts as a benchmark for the biofuels industry. This index includes futures contracts on physical commodities. These physical commodities are either biofuels or feedstock which is used in biofuels output.

It is important to note that FUE does not administer exposure to spot prices. Instead, the FUE will deliver returns available from a futures-based strategy. Also, it is worthwhile noting that this product is an ETN and you should consider the credit risk of the institution.

Buying Biofuels Stocks

If you are looking for a company who is engaged in biofuel output as well as furthering the usage of biofuels as an energy source, there are several companies who do so. It is worth taking a look at these companies if you believe that the usage of biofuel will increase, as their stock prices will perform well if biofuel usage increases.

The majority of biofuel companies are private, but there are a few public companies who are engaged in various aspects of this sector. These publicly held companies include the following: Earth Biofuels (OTCMKTS:$EGBB), NewGen Technologies (OTCMKTS:$NWGN), Bunge LTD (NYSE:$BG), and Better Biodiesel.

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