Oil-Related Energy ETFs Make Better Investments Than Other Natural Resources ETFs

by: Gary Gordon

The S&P 500 SPDR Trust (NYSEARCA:SPY) began 2012 with a bang, collecting 1.6% in the initial session. Yet it was far from the most impressive showing on Tuesday, January 3.

Consider the performance of some of the castaways from 2011. Market Vectors Nuclear Energy (NYSEARCA:NLR) rocketed 2.4%. PowerShares Global Water (NASDAQ:PIO) swam upstream for a formidable 3.2%. And Market Vectors Coal (NYSEARCA:KOL) corralled a smoking hot 5.6%.

Is this the evidence one needs for climbing back aboard the ”Natural Resources Express?” After all, even a European recession can’t put a permanent dent in the global growth story, as industrializing nations are still consuming more and more energy.

Unfortunately, the idea that worldwide demand will continuously outstrip global supply may be flawed. We’ve already seen how natural disasters can come close to destroying an entire industry like nuclear energy. We’ve also seen how systemic shocks can beat down infrastructure plays like water.

In contrast, some of the the very same forces that may cripple other resource-related investments (e.g., uprisings in the Middle East, nuclear tensions with Iran, etc.) may actually benefit the producers of “black gold” as well as the price of the commodity itself. Take a look at the differences in performance between oil-related and non-oil-related ETFs (and total commodity ETFs) below:

Natural Resources ETFs — 1 Day and 1 Year
1 Year % 1 Day %
United States Brent Oil Fund (NYSEARCA:BNO) 23.0% 4.4%
PowerShares DB Energy Fund (NYSEARCA:DBE) 6.0% 4.1%
iShares DJ U.S. Energy (NYSEARCA:IYE) 5.7% 2.7%
SPDR Select Energy (NYSEARCA:XLE) 4.8% 2.7%
PowerShares DB Oil (NYSEARCA:DBO) 4.6% 3.8%
SPDR Oil Gas Exploration Production (NYSEARCA:XOP) 3.6% 3.7%
United States Oil Fund (NYSEARCA:USO) 1.7% 4.2%
S&P 500 SPDR Trust (SPY) 2.5% 1.6%
Market Vectors Hard Assets Producers (NYSEARCA:HAP) -9.2% 3.5%
iPAth DJ Total Commodity (NYSEARCA:DJP) -12.2% 2.1%
Guggenheim Global Timber (NYSEARCA:CUT) -16.8% 3.0%
PowerShares Global Water (PIO) -19.0% 3.2%
Market Vectors Coal (KOL) -29.4% 5.6%
Market Vectors Nuclear Energy (NLR) -32.9% 2.4%
United States Natural Gas Fund (NYSEARCA:UNG) -48.8% 0.2%

Granted, other than the ever-deteriorating value of natural gas prices stateside (we’ve got a century’s worth of this stuff), all of these resource-related investments soared out of the gate. On the other hand, the resilience of crude oil in 2011 should give investors a clue on the better way to play global growth. That is, the energy sector via funds like iShares DJ Energy or the commodity via United States Brent Oil may have a better shot at weathering - even profiting from - the next storm.

Oil bulls might also want to take note of the price on iShares DJ Energy (IYE). It has risen back above its 200-day, long-term moving average.

IYE 200

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.