5 Lesser-Known Energy ETFs to Play $66 Oil

With oil prices roughly twice their lows two years ago, energy stocks look good once more

Oil and gas stocks  have created plenty of headaches for investors over the last several years. As crude oil prices crashed from over $100 per barrel in 2014 to a low of $30 in 2016, a lot of big-name energy investments suffered.

But, the oil patch looks to be mounting a comeback in 2018, and a number of energy ETFs are looking like great opportunities once more.

With crude oil prices back in the mid-$60s, a steady uptrend for oil and gas stocks has occurred. After cuts to operations and increased efficiencies during the lean years, oil prices that are comparatively rich have provided bigger profits and a lot more stability to an industry that was once in danger of widespread bankruptcies.

To play this trend, you can always buy individual stocks. But, even the biggest names in energy aren’t created equal, with integrated oil giants Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) actually down by modest amounts year to date.

So, if the old Big Oil names aren’t cutting it right now, where can investors look?

Here are five diversified ETFs that allow you to play the energy sector’s resurgence in 2018.

Lesser-Known Energy ETFs to Play $66 Oil: Global Energy  

While Exxon and Chevron are undoubtedly huge, let’s not forget there are plenty of other oil giants in the world out there, too. These typically aren’t included in the conventional Big Oil fund that focuses only on the S&P 500 index. If you’re globally minded, you may want to consider the iShares Global Energy ETF (NYSEARCA:IXC) to include those players as well.

Domestic large-cap energy stocks make up about half the portfolio, however international energy stocks including BP plc (NYSE:BP) and Royal Dutch Shell (NYSE:RDS) add some nice geographic diversification to the list.

This is decidedly not an emerging market fund, however, with regions such as China and Brazil representing 2% or less of the total portfolio. It’s largely European nations and Canada that round out this fund. 

Lesser-Known Energy ETFs to Play $66 Oil: Small Cap Energy 

Don’t like the big guys as much because you want to play the up-and-coming energy stocks that could benefit most from a recovery? Then consider playing small-cap stocks in the space via the PowerShares S&P SmallCap Energy Portfolio (NYSEARCA:PSCE).

Top holdings aren’t household names, including independent explorer PDC Energy (NASDAQ:PDCE) and U.S. Silica Holdings Inc (NYSE:SLCA), which produces specialized sand to fracking companies. So, rather than do your research on individual small caps in the space, you can rely on this fund of 28 stocks instead.

Of course, just 28 stocks means this fund comes with its own risks. A few duds can really cause a drag on total performance — but conversely, just a few winners can really add up.

Lesser-Known Energy ETFs to Play $66 Oil: Oil & Gas Exploration 

A similar twist to going small is simply to go after the first link in the energy chain — the explorers that pull crude oil and natural gas out of the ground. These are the companies that are hardest hit when energy prices crashes, but also the ones that see the biggest uptick in profits when prices stabilize.

That’s what the SPDR Oil & Gas Exploration ETF (NYSEARCA:XOP) provides.

These aren’t all no-name stocks, with mid-sized S&P components like Marathon Oil (NYSE:MRO) in there. However, other lesser-known companies such as Parsley Energy Inc (NYSE:PE) and Callon Petroleum (NYSE:CPE) round out the list of 68 holdings nicely.

Just keep in mind that, while these stocks may benefit more from an oil upswing, any collapse in prices may hit them harder than the big integrated stocks out there.

Lesser-Known Energy ETFs to Play $66 Oil: Multi-Factor Energy

Another way to mix up your energy investments is to take a slightly more selective ETF like the John Hancock Multi-Factor Energy ETF (NYSEARCA:JHME), which selects stocks based on specific factors like profitability or relative value vs. peers in the sector.

This is a smaller fund, with only about $30 million in assets under management, but very unique in that it finds the middle ground between the rigid constraints of prior funds. For instance, its top holdings still include Exxon and Chevron, but each of those is only at about 5% weighting. At the same time, little-known mid-cap stock Andeavor (NYSE:ANDV) makes the top 10.

ANDV is an interesting alternative to plain vanilla sector funds in the energy space.

Lesser-Known Energy ETFs to Play $66 Oil: MLPs

Interested in energy largely for the dividends? Most of these aforementioned ETFs will pay you a nice 3% or so, thanks to distributions from well-heeled holdings. However, the juiciest dividends come from master limited partnerships, or MLPs, instead of widely held integrated energy giants.

That’s because MLPs are run like partnerships — any shareholder gets a direct stake in the profits of the company. Typically, these partnerships own and operate pipelines and other energy infrastructure, so they have very reliable revenue streams as they move crude oil and natural gas around the globe to meet demand.

Admittedly, there isn’t a lot of growth in the Alerian MLP ETF (NYSEARCA:AMLP). But, with current quarterly payouts yielding roughly 7.5% — two to three times the typical energy ETF — the trade-off for a big income stream could be well worth it for certain investors.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/energy-etf-66-oil/.

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