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15 Different Ways To Invest In Energy With Etfs (XLE, UNG, BNO, FCG, USO, DBO, XOP, OIH, XOM)

 May 07, 2012 12:40 PM

(By Michael Johnston) Energy has long been a popular destination for all types of investors, ranging from smaller individuals to sophisticated billion dollar hedge funds. It wasn't that long ago that the strategies for investing in energy were relatively simple and straightforward: buy ExxonMobil (NYSE:XOM). But thanks in part to the ETF boom, there are now options aplenty for tapping into global energy markets. Below are 13 different strategies for investing in energy, each offering unique risk / return profiles:

1. "Plain Vanilla" Energy ETFs

The traditional form of exposure to energy is still the most popular, as there are billions of dollars invested in products that offer exposure to "Big Oil" stocks such as Exxon, Chevron, and others. Even within this category, however, the options are far from homogeneous; there are various broad-based funds in the Energy Equities ETFdb Category that deliver unique exposure through weighting methodologies, geographic focuses, and other nuances [see Free Report: How To Pick The Right ETF Every Time].

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 A few of the "plain vanilla" options out there:

  • Vanguard Energy ETF (NYSEARCA:VDE)
  • iShares Dow Jones U.S. Energy Sector Index Fund (NYSEARCA:IYE)

2. Small Cap Energy ETF

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For investors looking to target smaller companies in the domestic energy sector, the PowerShares S&P SmallCap Energy Portfolio (NYSEARCA:PSCE) offers a way to tap into "little oil." You won't find the Exxons or BPs of the world in this ETF; PSCE offers a portfolio of the energy stocks that make up the S&P SmallCap 600 Index, meaning that it will generally consist of younger companies that may exhibit more volatility in certain environments [see PSCE Holdings]. .

3. Emerging Market Energy ETFs

Many of the largest energy companies in the world aren't headquartered in the U.S.; they operate in places such as Brazil, China, and India. As the need for energy in emerging markets has skyrocketed, so too have the sizes of energy companies headquartered in these markets. And there are ETFs that deliver targeted exposure to emerging markets energy stocks, including broad-based and country-specific funds:

  • China Energy ETF (NYSEARCA:CHIE)
  • EGShares Emerging Markets Energy ETF (NYSEARCA:OGEM)

4. MLPs

Master Limited Partnerships are a unique corner of the energy sector that has attracted significant interest in the low interest rate environment. That's because MLPs must distribute significant portions of current earnings in order to realize certain tax benefits, leading to hefty distribution yields that now often exceed 5% [see MLP ETFs: Fact And Fiction].

There are a number of products in the MLPs ETFdb Category that offer exposure to this segment of the market, including both ETFs and ETNs. Due to the tax consequences of these structures, the decision between these two routes can be a very important one that has a major impact on bottom line returns.


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