Three Rock Solid Energy ETFs

by on June 10, 2010 | ETFs Mentioned:

The past several months have been turbulent times for many equity ETFs, as debt fears and worries about a double-dip recession have persistently hung over markets. Among the hardest hit thus far in 2010 are energy ETFs, which have felt the brunt of sluggish economic growth in the form of lower oil prices; crude has slid more than 17% since mid-April. Energy ETFs began to experience additional headwinds second right around that time as well, with the start of the Gulf oil spill. These two events have rocked the sector and have sent their year to date returns plunging; of the 40 ETFs in the Energy Equities ETFdb Category, only three have managed to post gains year to date. While these gains have not been large, they contrast sharply with the vast majority of the clean energy ETFs, some of which have lost close to 40% on the year, and oil service firms that have been devastated by the Gulf spill.

While the past six weeks have not been very kind to energy ETFs, a few have managed to weather the storm and post year to date gains. These top performers tend to fall into one of two categories, focusing on either exploration and production or holding infrastructure assets. In other words, these funds tend to be less sensitive to price swings and tend to derive their value from factors such as the success of exploration efforts or demand for infrastructure assets. Below, we profile these three funds that have remained valuable additions of many portfolios and could remain so if troubles in the oil markets continue. While these funds are not risk-free by any measure, they may be able to provide investors with more stable exposure to the energy industry (see The Definitive Guide to Oil ETFs).

SPDR S&P Oil & Gas Exploration & Production Fund (XOP)

This fund tracks an equal weighted market cap index that is made up of U.S. exploration and production firms. The fund holds 34 securities and has a wide variety of market capitalization levels with just under 50% of the fund going towards mid capsand roughly 38% towards giant and large cap firms. Some of its top holdings include Pioneer Natural Resources (3.6%), Denbury Resources (3.5%), and Whiting Petroleum Corp (3.4%). XOP has managed to produce a gain of 1.5% thus far in 2010 and it is down just 1.2% over the past month (see Nine Twists on Sector ETF Investing).

JP Morgan Alerian MLP Index ETN (AMJ)

AMJ tracks the Alerian MLP Index, which is a market-cap weighted, float-adjusted index created to provide a comprehensive benchmark for investors to track the performance of the energy MLP sector. The majority of MLPs currently operate in the energy infrastructure industry, owning assets such as pipelines that transport crude oil, natural gas and other refined petroleum products. AMJ charges an expense ratio of 85 basis points, it pays out a dividend yield of 6.0%. The fund has been one of the best performers in the energy ETF sector thus far in 2010, posting a gain of 3.4% (see Five Ultra Popular ETNs).

PowerShares Dynamic Energy Exploration & Production Fund (PXE)

PXE, much like XOP, tracks firms that are engaged in exploration and production activities. However, unlike its counterpart, PXE does not use an equal weighting strategy and thus is more focused on large and giant cap firms, including ConocoPhillips (5.5%), Chevron (5.1%), and Occidental Petroleum (5.0%). Even though it has this focus on more household names, the fund does allocate a decent amount to medium cap securities, which make up about 34% of assets, giving investors a decent level of exposure to securities of all sizes (see more information on PXE’s holdings here).

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Disclosure:  No positions at time of writing.