Saturday, December 10, 2011

Top Ideas for Investing in Energy ETFs

Exchange traded funds, or ETFs, are a popular way for investors to gain exposure to a certain class of investment vehicles without committing the share of their investment budget to that sector to a single organization. ETFs are unique in that they track a basket of assets or commodities, but are traded like stocks. This is attractive as it gives them a high degree of liquidity, the investor can buy on margin, and the expense ratios are typically lower than most mutual funds.

There is no denying that the energy sector is red-hot right now. A whole class of commodity ETFs focused on the energy sector is available. The main attraction of investing in an energy ETF as opposed to speculating on an energy related commodity, like oil or coal, is that an energy  ETF is less prone to the high levels of volatility seen lately in energy-related commodity ETF prices. With so many energy ETF s to choose from, it can be difficult to spot the best buys, so we have narrowed the playing field down to a few of the hottest performers.

United States Oil Fund (USO)
Focused on price changes of light, sweet crude oil traded on the New York Mercantile exchange, The United States Oil Fund is a reasonably prices fund to get into, usually fluctuating between $29 and $40 per share. With a market capitalization of over $1.4 billion, it is one of the heavyweight energy ETFs out there. The bulk of its holdings consist of oil futures contracts, although a decent percentage is tied up in safe government holdings.

United States Natural Gas Fund (UNG)
Another giant energy ETF, the United States Natural Gas fund boasts a yearly traded volume of 9,316,224 and nearly $1.3 billion dollars in assets. It is currently very undervalued at about $7 per share. The asset structure of the United States Natural Gas Fund is exceptionally well hedged against market volatility for a commodity ETF. A full 43% of its assets are in cash, with an additional 24% in government bonds.

Rogers International Commodity Energy (RGN)
The Rogers International Commodity Energy portfolio is diversified between six energy-related commodities, making it perfect for the investor who wishes to avoid overexposure to a single commodity. It is another affordable energy ETF to get involved in, with share prices fluctuating between $5 and $8 over the last 52 weeks. Over 95% of RGN's capital in invested in stock shares of US and international companies involved in alternative energy. With holdings in over 60 entities, with no single organization representing more than 3% of assets, this is a highly diversified fund on the cutting edge of emergent technology.

United States Gasoline Fund, LP (UGA) 
Costing only about $50 per share, this ETF holds over $70 million in assets and has provided a 12% return on investment so far this year. With stakes in gasoline funds backed by some big-name investment banks, this ETF has some of the biggest brains in the industry behind it.

United States 12 Month Oil Profile (USL)
With over $150 million in assets and issued by industry Giant US Commodity funds, USL maintains profitability by keeping 12 monthly oil futures contracts to best take advantage of price fluctuations.

DJ-UBS Energy Total Return Sub-Index ETN Profile (JJE)
Backed by Swiss Banking giant UBS, this ETF has over  $20 million in assets. It is currently made up of four energy-related commodities contracts (crude oil, heating oil, natural gas and unleaded gasoline) traded on U.S. exchanges. 

ETRACS Oil Futures Contango ETN (OILZ)
Also issued by UBS, this ETF has nearly $10 million in assets and a modest share price of about $25. Most of its holdings are in futures contracts.

iPath Pure Beta Crude Oil (OLEM)
With $5 million in holdings, this is one of the smaller Energy ETFs available on the market. Issued by Barclays, it is focused on crude oil. This fund's holdings are based on futures contracts.

PowerShares WilderHill Clean Energy Portfolio (PBW)
Not a traditional commodity ETF, the Powershares Wilderhill Clean Energy Portfolio is an ETF that seeks to capitalize on emergent clean energy technology. With a share price of a little over $5 and over $200 million in assets, the PBW provides a good mix of affordability and diversity. 

Market Vectors Nuclear Energy ETF (NLR)
With over $100 million in assets and an affordable share price of $20, NLR provides a diversified way to gain entry into the lucrative nuclear energy sector. The majority of its holdings are made up of stock shares in companies that build, operate, and maintain nuclear power plants. The assets are a good mix of existing operators and new plant construction companies.

This represents but a small fraction of the commodity ETF s involved in energy related activities. The range of commodity investment vehicles represented by the funds holdings is a powerful illustration of just how many diverse areas exposure to an ETF can provide the savvy investor.