by Jim Woods | February 9, 2012 7:00 am
Energy is the lifeblood of 21st century civilization, so it’s no surprise investors are constantly on the hunt for profits generated from this critical industry.
And while the fortunes in the energy patch can be fickle, there are certainly times when it pays handsomely to be long the sector.
So far in 2012, results have been mixed in the energy space.
Oil prices are down, as are natural gas prices. However, that doesn’t mean money isn’t being made in various energy-oriented ETFs.
It also doesn’t mean you should ignore funds in the space that haven’t seen much upside this year.
The biggest and broadest of the energy ETFs, the Select Sector Energy SPDR (NYSE:XLE) is the go-to fund for general exposure to the space. This ETF holds the biggest names in energy, including behemoths Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), Schlumberger (NYSE:SLB) and ConocoPhillips (NYSE:COP) to name just a few of the XLE’s top holdings. Generally, if oil prices are rising, XLE is going to trend higher. So far in 2012, XLE is flat. However, oil prices are down about 4%, so XLE has shown its resilience in the face of a decline in the value of crude.
When the price of oil is high, getting that oil becomes a very profitable industry. Enter oil services firms such as Halliburton (NYSE:HAL), Baker Hughes (NYSE:BHI) and Weatherford International (NYSE:WFT), which also happen to be three of the biggest holdings in the Market Vectors Oil Services ETF (NYSE:OIH). As of Jan. 31, This fund is up 8.03%, and one reason is because companies are looking to increase oil production from unconventional sources. That’s where oil services companies shine, and as long as oil is priced high enough to make that extra extraction effort worthwhile, stocks in this space will enjoy a favorable tailwind.
The Alerian MLP ETF (NYSE:AMLP) is an unusual energy fund that holds 25 energy infrastructure master limited partnerships. The unique structure of this fund allows for the elimination of any K-1 tax reporting, yet the fund still pays qualified dividends to shareholders. Think of AMLP as a broad energy play on North America’s changing energy transportation dynamics. It’s also a way to profit from the billions of investment dollars that will be required to build out natural gas and oil pipeline infrastructure. Owning AMLP is also a great way to add yield to a portfolio. As of Jan. 31, AMLP’s yield was a robust 5.94%.
The solar sector suffered quite a few bruises last year, with boondoggles such as bankrupt Solyndra capturing the headlines. However, so far in 2012, solar stocks are shining bright.
The Guggenheim Solar ETF (NYSE:TAN) is up 17.4% year-to-date through Jan. 30, and it’s this type of stellar upside that’s capable with stocks in this volatile sector.
TAN holds the 35 biggest stocks in the solar space, including First Solar (NASDAQ:FSLR), GT Advanced Technologies (NYSE:GTAT) and MEMC Electronic Materials (NYSE:WFR). When it’s time to get a little sun exposure, TAN is the ETF to give your portfolio a few rays.
If you want to play the direction of crude oil prices, then the United States Oil Fund (NYSE:USO) is the ETF for you. This fund doesn’t hold energy stocks, exploration stocks or anything else except for futures contracts designed to approximate the spot price of West Texas Intermediate (WTI) light, sweet crude oil. This is the key measure of oil prices in the U.S., so if you’re bullish on the oil prices, then direct exposure via USO could be for you. A word of caution, however: USO is designed to track the price of crude, but sometimes it’s a bit off, and that can slant your results.
This article originally appeared on Traders Reserve.
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