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Funds that invest in United States companies focused on exploring, refining, and distributing petroleum or gas energy.
Bold listings are recommended for this category.Fund ComparisonYou know a sector has been hot when every company launches new funds. Energy is on fire with funds now covering this sector from just about every angle. The funds can be grouped into the following categories: Oil Futures, Clean Energy, Equipment, Exploration, and Broad holdings. Claymore and ProShares added new funds that trade in energy futures. ProShares magnifies the investments to return twice the index movement. Also, the Goldman Sachs Crude Oil Total Return Fund (OIL) and U.S. Oil Fund (USO) own oil futures which are a bet on oil prices. We prefer investing in the oil companies which have earnings even when oil prices drop or stay the same. Futures contracts will only make money if the price of oil rises or drops, but futures are highly leveraged and can earn higher returns or losses on oil price changes. First Trust NASDAQ Clean Edge (QCLN), PowerShares Clean Tech (PZD), PowerShares WilderHill Clean Energy (PBW), and PowerShares WilderHill Progressive (PUW) funds focus on companies that generate renewable energy or cleaner energy technologies. Investors who would like to encourage these new technologies may want to invest in these funds, but they carry higher price/earnings ratios and greater expenses than the broader funds. We also don't recommend more narrowly invested funds specializing in equipment or exploration. While we expect increased investing by large oil companies in equipment and exploration, these fund prices also move in-sync with the overall energy sector. We don't like their fewer holdings which make them more susceptible to company specific problems. Three funds (Energy SPDR (XLE), iShares DJ Energy (IYE), and Vanguard Energy VIPERs (VDE)) are very similar with ExxonMobile and ChevronTexaco composing 30% to 40% of the entire fund assets. These funds lack diversification which makes them risky in case of a problem at either of these huge companies. We do not recommend concentrating your investment so greatly. One oil spill by either of these companies, and you will experience a great loss. Similarly, iShares S&P Global Energy (IXC) owns 18% of ExxonMobile. It is different from XLE and IYE in that it owns foreign companies, but it also has higher expenses. Again, we recommend a broader diversification in case of lawsuits or other adverse events at ExxonMobile. Merrill Lynch Market Oil Service (OIH) has the lowest annual expenses in the category. At current prices, expenses are approximately 0.05% annually. On the downside, OIH is not as diversified as the other funds with only 18 companies, and note that this fund does not include the large integrated companies. Therefore, OIH is only appropriate for aggressive, highly risk tolerant investors. We prefer a fund that is not as concentrated. We favor low expenses and broad diversification. Most fund expenses are too high. SPDRs have lower expenses, but are not as broadly diversified as the iShares funds. We favor the iShares funds with decently low expenses and large numbers of holdings. The iShares GS Natural Resources (IGE) is the most broadly diversified of all the funds. We like the lower risk concentration in ExxonMobile or ChevronTexaco in case either of these companies have problems. IGE has the additional 15% holdings in the metal mining industry which we think will continue to do well. Overall, we recommend IGE for its broad holdings despite its moderate expense ratio. Fund ChartsBroad: IGE versus OIH, XLE, IXC, and VDE over the last year. Broad: IGE versus PRFE, PBW, RYE, and DKA over the last year. Clean: IGE versus QCLN, PZD, PBW, and PUW over the last year. Equipment & Services: IEZ, PXJ, and XES over the last six months. Exploration & Production: IEO, PXE, and XOP over the last year. Futures: IGE versus OIL, USO, UCR, and DIG over the last year.
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Eustis Investing Strategies (EIS) does not guarantee the accuracy or completeness of this information, nor do we assume any liability for any loss that may result from its use. EIS personnel may own shares in the funds recommended on this website. Send mail to
master@eustis-invest.com with questions or comments about this web site.
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