Here are four energy ETFs that are often overlooked by investors in favor of the big name, ,such as the SPDR Energy ETF (XLU).
Alerian MLP ETF (AMLP) is composed of 25 energy infrastructure Master Limited Partnerships (MLPs) that garner the majority of their cash flow from transporting and storing energy commodities. The ETF is currently pulling back from a historic high, similar to many of the MLPs that make up the top ten holdings. On top of exposure to the energy sector, AMLP offers a dividend of 6.1% (based on the last 12 months of dividends).
For the instant diversification of 25 MLPs in one basket, the fund charges a 0.85% annual expense ratio. This is a little high for me, but in certain situations I am willing to pay a little more for exposure to a niche sector I believe will outperform.
IQ Global Oil Small Cap ETF (IOIL) is a basket of 61 small cap energy stocks from around the globe. Investors often overlook this portion of the energy sector as many of the stocks that make up this ETF are traded overseas and are not household names.
About 52% of the stocks in the ETF are based in the US, with Canada making up 9%, Thailand 6%, and Japan 5%. A P/E ratio of only 8.2 makes the ETF fundamentally attractive and investors that believe oil will be higher in the coming year should consider IOIL as a way to play higher oil prices with exposure to equities.
Global X Oil Equities ETF (XOIL) is your choice if you want high correlation to the price of oil according to the fund company's description of the index. There are 25 equal-weighted energy companies from the US and Canada that make up the ETF. The US accounts for 60% of the allocation and Canada is responsible for 40%. The ETF has an expense ratio of 0.49% and the current top two holdings are Clayton Williams Energy (CWEI) and Continental Resources (CLR).
United States Gasoline ETF (UGA) is the one ETF that does not invest in energy equities, but rather the futures market. UGA holds the front month gasoline futures contracts that are traded on the NY Mercantile Exchange. The one issue with this type of setup is contango, which I will not get into in this article. Do a search for contango and you will find plenty of reading material.
If the price of oil rises it will likely make its way into the gasoline futures and push UGA higher. The ETF hit a new three-month high this week, but is now against resistance at the $51.50 area that must be watched closely. The ETF charges an expense ratio of 0.6%.
Disclosure: I am long UGA.