Can Energy Stocks Stay Hot in 2022?

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For Bullish Investors Here Are Some of Their Alternatives to Energy ETFs

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Energy investors can use exchange-traded funds to invest in a diversified portfolio of fossil-fuel producers and other companies, or they can choose funds that focus on particular sectors of the industry. There are riskier positions available in leveraged funds, which aim to double or exceed the returns of their benchmark index, and inverse funds, which aim to provide similar outperformance in the opposite direction of their benchmark.

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Here are a few examples, including some of last year’s top performers.

passive index fund

Like every sector of the economy, there are low-cost passive index ETFs available for energy. The Vanguard Energy ETF (VDE) has an expense ratio of 0.10% and tracks the MSCI US IMI Energy 25/50 Index. The result is a wide basket of investments in oil and gas companies, coal companies, and the infrastructure that supports them, including pipeline services, transportation and storage. VDE ended 2021 up 56.2%.

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The State Street Global Advisors Energy Select Sector SPDR ETF (XLE), which tracks the Energy Select Sector Index — a comprehensive benchmark that includes fossil-fuel producers and companies that provide services for the oil and natural-gas industries — The year ended up to 53.3%. The expense ratio of the fund is 0.12%.

subject fund

For investors who want more narrowly focused exposure to the energy sector, there are a number of thematic funds that invest in specific sectors of the industry. These funds tend to have higher expense ratios than larger passive funds.

The First Trust Natural Gas ETF (FCG) tracks the ISE-Revere Natural Gas Index, which includes natural gas exploration and production companies. FCG has an expense ratio of 0.60% and invests in large-, medium- and small-cap companies. Natural gas is often thought of as a bridge fuel at a time when supplies of other fuel sources are tight and when economies begin their energy transition to renewable energy. Both trends were bigger last year, and ended FCG 2021 up 98.4%.

The Invesco Dynamic Energy Exploration and Production ETF (PXE) focuses on exploration and production for both oil and gas. Its expense ratio is 0.63%. As energy demand boomed in 2021, PXE grew year-end 103 percent.

Extracting fuel from the ground isn’t the only topic available to energy investors. The VanEck Oil Services ETF (OIH) provides exposure to the 25 largest and most traded oil-services companies in the US. do the processing. Oil services are considered a more conservative subject within energy, as the share prices of these companies are less volatile than those of fuel producers. Fund pricing and performance reflect low volatility: OIH has an expense ratio of 0.35% and ended 2021 at 21.3%.

complex fund

There are also a number of funds that provide more complex exposure to the energy sector. Leveraged and inverse ETFs have grown in popularity among investors in recent years. However, these funds tend to be the most expensive, and while they can post huge gains due to leverage, swords cut both ways, and they can also post massive drawdowns. Working with an advisor can help investors make the best use of these ETFs.

Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH) is to be positioned as a short term fund. The strategy aims to deliver a return twice that of the S&P Oil & Gas Exploration & Production Select Industry Index, but investors face double the loss if the index goes down. With an expense ratio of 1.17%, the fund is one of the most expensive energy ETFs. It ended 2021 up 130%.

The Microsector US Big Oil Index 3X Leveraged ETN (NRGU) tracks the selective Microsector US Big Oil Index of oil producers and aims to provide three times the daily returns of the index. The fund is more risk-averse than most funds in the energy ETF category and is meant to be a short-term investment. It has an expense ratio of 0.95% and ends in 2021 at 165%.

Ms. McCann is a writer in New York. He can be contacted at [email protected]

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