ETFs for an Energy Renaissance

03/25/2014 9:00 am EST

Focus: ENERGY

Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and ETFU.com

 

One of the biggest, and potentially most powerful, investment themes I’ve seen in the last several years is in the energy sector, particularly in what I call the American energy renaissance, suggests Doug Fabian, editor of Successful Investing.

US crude oil supply in 2013 registered the fastest absolute annual supply growth of any country in the last two decades, rising some 15% last year.

Natural gas production in the United States also is going strong, and the United States is expected to be a net exporter of natural gas and liquefied natural gas by 2018.

Thanks to another renaissance, of sorts, in recent years—the ETF industry renaissance—investors can both easily and cost-effectively gain access to the best companies profiting from the trends in the energy space.

The way we see it, there are five ways to play the American energy renaissance, and all five ways have multiple ETF options available to us.

First, you can use pure commodity funds, such as the US Natural Gas Fund (UNG) and the US Oil Fund (USO) to gain exposure to the raw materials of the sector.

The second way is to buy funds in “Big Oil,” which are ETFs that hold stocks of oil and gas exploration and production companies. Good ETFs representing this segment are the First Trust Nat Gas Index (US:FRAK).

A third way to gain exposure to this energy revolution is via energy services stocks, and that means ETFs such as the First Trust Energy Alphadex (FXN) and the iShares US Oil Equipment & Services ETF (IEZ).

High yield funds also play a role in the American energy renaissance, so if you are a dividend-oriented investor, you don’t have to be left out of this powerful trend.

Master limited partnerships, or MLPs, such as the Alerian MLP ETF (US:AMLP) and the First Trust North American Infrastructure Fund (EMLP), are examples of potential Income Portfolio funds pegged to energy.

Finally, there are alternative energy funds that allow you in on the highest-tech sectors of the energy space, such as wind and solar. Funds such as the PowerShares Wilderhill Clean Energy (PBW) and the Guggenheim Solar ETF (TAN) are great ETFs for sector exposure.

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