3 ETFs to Play the Energy Sector

The worlds appetite for energy surely will continue to grow. But the companies
that provide the demand range from high quality to highly speculative. In trying
to play the energy sector, numerous funds and ETFs have set guidelines about
what portion of this spectrum they want to occupy. The Energy Select Sector SPDR
(NYSE: XLE ) ETF has been around for more than 10 years. XLE invests in the
stocks of energy companies that are listed in the S&P 500 Index. Management of
XLE has discretion in investment choice and weighting. The top 10 holdings are:
Exxon Mobil (NYSE: XOM ): 17.18% Chevron (NYSE: CVX ): 13.41% Schlumberger
(NYSE: SLB ): 7.77% ConocoPhillips (NYSE: COP ): 4.99% Occidental Petroleum
(NYSE: OXY ): 4.69% Halliburton (NYSE: HAL ): 3.55% Apache (NYSE: APA ): 3.46%
Anadarko Petroleum (NYSE: APC ): 2.82% Marathon Oil (NYSE: MRO ): 2.8% National
Oilwell Varco (NYSE: NOV ): 2.67% XLEs performance is just as volatile as the
energy sector as a whole. Not all investors may be impressed with the idea of
playing Big Oil right now, so if youre on the other side of the trade, remember:
You can always short these funds too and play the downside of the energy sector.
The PowerShares Dynamic Energy ETF (NYSE: PXI ) is based on a grouping of stocks
that make up the Dynamic Energy Sector Intellidex Index. This group includes a
wide range of stocks as measured by market capitalization. The group also
contains growth and value stocks. The combination of styles and capitalizations
creates a mix that delivers returns exceeding the S&P 500 by a wide margin. The
top 10 holdings of this ETF are: EQT Corp (NYSE: EQT ): 2.70% Valero Energy
(NYSE: VLO ): 2.66% Williams Partners LP (NYSE: WPZ ): 2.6% Hess Corp (NYSE: HES
): 2.58% FMC Technologies (NYSE: FTI ): 2.51% Baker Hughes (NYSE: BHI ): 2.5% El
Paso Corp (NYSE: EP ): 2.5% National Oilwell Varco (NYSE: NOV ): 2.45% Chevron
(NYSE: CVX ): 2.45% Devon Energy (NYSE: DVN ): 2.45% PXI appears to limit
exposure to any one stock to less than 3% of the overall portfolio. This risk
management technique has served well in the ETFs five-plus years of existence.
Lastly, an ETF that is tied to the Dow Jones Index is the iShares Dow Jones US
Energy ETF (NYSE: IYE ). The index is based on oil and gas, producers,
distribution and services companies. IYE appears to be more conservative in
performance when compared to other ETFs in this space. The top 10 holdings are:
Exxon Mobil (NYSE: XOM ): 24.365% Chevron (NYSE: CVX ): 13.24% Schlumberger
(NYSE: SLB ): 7.12% Concoo Phillips (NYSE: COP ): 5.98% Occidental Petroleum
(NYSE: OXY ): 4.69% Halliburton (NYSE: HAL ): 2.69% Apache (NYSE: APA ): 2.64%
Anadarko Petroleum (NYSE: APC ): 2.48% National Oilwell Varco (NYSE: NOV ):
1.87% Devon Energy (NYSE: DVN ): 1.81% This distribution shows that IYE is
heavily reliant on both Exxon and Chevron to drive the returns. With almost 40%
in these two stocks, youre not getting much diversification. Jeffrey L. Stouffer
is the principal of Mercantile Capital Group, a Herndon, Va.-based introducing
broker registered with the CFTC and a member of the National Futures
Association. He can be reached at mercapitalgroup@aol.com . He has no direct or
indirect holdings in any of the aforementioned ETFs.