This Hot Trend Gives You a Big Advantage: Peabody Energy Corporation (BTU), CONSOL Energy Inc. (CNX)

Obviously, that approach has pros and cons. Take the example of coal stocks, which have been beaten down due to the plunge in natural gas prices and the ensuing conversion of many electric utilities from coal- to gas-fired power plants. If you think that coal stocks in general will benefit from rebounding natural-gas prices, then investing in Market Vectors-Coal (NYSEARCA:KOL) should give you good diversified exposure to the industry. By owning stakes in many different coal stocks, you won’t maximize your returns, but you won’t get stuck with the worst performer, either.

By contrast, a value investor might drill down further to try to discover which particular coal stock was most likely to do well. For instance, if natural gas prices stay low but a rebounding Chinese economy pushes demand up, then Peabody Energy Corporation (NYSE:BTU)‘s Australian operations and Teck Resources Ltd (NYSE:TCK)‘ access to the Pacific Rim from western Canada could do extremely well. By contrast, Appalachian-focused Alpha Natural Resources, Inc. (NYSE:ANR) and CONSOL Energy Inc. (NYSE:CNX) could see continued weakness as they have to pay higher costs to get coal moved to higher-demand areas of the world.

How do you want to invest?
The rise of ETFs opens up opportunities for astute value investors. By paying attention to the stocks that make up the indexes that ETFs track, you can identify which stocks in a particular industry will have ETF-related demand, and which will be largely ignored by institutional investors. By focusing on those overlooked stocks, you’ll have the best prospects to discover great stocks that others miss.

The big trend toward ETFs and low-cost investing makes plenty of sense, and ETFs are still smart investments for millions of investors. If you want to take the next step, though, looking to take advantage of ETFs’ rigidity in tracking their indexes could make you a lot of money.

The article This Hot Trend Gives You a Big Advantage originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.