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Investing In Oil & Gas A Bit More Prudently


  • To play the (still forthcoming) rebound in the oil & gas space, I prefer to use diversified sector funds.
  • The Vanguard Energy ETF looks like a reasonable investment tool due to its diversified nature and low management fees.
  • But don't forget, putting money in oil & gas is not without significant risks.

It has been, perhaps not unexpectedly, a roller-coaster ride.

After WTI crude prices shot from 52-week lows of $47/barrel in June 2017 to about $65/barrel early this year (see graph below), concerns over rising inventories seem to have capped the recovery at the low $60s level. In February, equities in the energy space experienced the worst month of returns in the past two years, driven in large part by the lack of additional good news on the commodities front to support the late 2017 rally.

(Credit: Macrotrends)

But I am not ready to throw in the towel on the oil & gas industry just yet. As I mentioned not long ago, the narrative coming from a few key players in the space seems to be largely bullish on the macro trends. What I am not willing to do, however, is make isolated bets that could overlay volatility and uncertainty driven by company-specific risk on top of an already volatile and uncertain sector.

To play the potential rebound in the oil & gas space more prudently, and I have been doing so using only a small chunk of my portfolio, I prefer to turn to diversified sector funds. And my index fund of choice for the past couple of years has been the Vanguard Energy ETF (NYSEARCA:VDE).

What I like about the fund

Being a cheapskate at heart, one of the key factors weighing on my decision to pick an ETF over its competitor is management fee. And when it comes to costs, it is hard to beat Vanguard's product portfolio. See the chart below ranking the top 8 energy ETFs by admin expenses.

(Source: ETFdb.com)

Notice that VDE is not the number one pick on the list above, trailing Fidelity's product, the Fidelity MSCI Energy Index ETF (FENY). But

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This article was written by

DM Martins Research profile picture

Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.

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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.

He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.

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On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.

DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks).

Analyst’s Disclosure: I am/we are long VDE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

I'm definitely committed to VDE long term......because I bought in high the beginning of last year....ouch!
DM Martins Research profile picture
I bought my first batch of VDE in 2015 at $104 -- not cool. But dollar-cost averaged all the way down to the $80s and sold quite a bit at around $100 recently. Buying when the price drops might be a good idea, provided the investor is not overexposed.

Good luck!
Spot-on article and well done. Before we worry too much about low future oil prices, I simply state that Ghawar and its 174 mile diameter discovered in 1947 (not a typo) is far closer to "all done" than full capacity.
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