4 international energy ETFs

With world markets recovering and developing, the prospects for the power industry appear promising.

By TheStreet Staff Jan 20, 2011 12:56PM

Image: Globe (© Comstock/SuperStock)By Don Dion, TheStreet

 

Rising commodity prices have been the talk of the Street for weeks, leading investors to seek out new and promising ways to gain access to wheat, coal, copper and other hard assets.

 

Energy, in particular, has gained a great deal of investor interest as improving economic conditions around the globe help lift crude prices back toward $100. This week, looking ahead to the new year, the International Energy Agency offered a promising outlook, raising its 2011 global oil demand forecast.

 

Targeting oil and other facets of the energy sector has become a simple endeavor, thanks to the advent of exchange-traded funds. Using products such as the United States Oil Fund (USO) or the iShares Dow Jones U.S. Oil Equipment & Services Index Fund (IEZ), investors can directly capture the price action of this fuel source through futures contracts, or take an indirect approach to the industry and play the effect of rising prices on producers.

 

A third and less obvious way investors can track the energy industry is through the use of a number of internationally focused ETFs. Across the globe, a number of prominent emerging and developed players boast ample exposure to the energy market. Reflecting this, ETFs designed to track their respective economies are often heavily dedicated to this industry.

Among popular emerging-market ETFs, the iShares MSCI Brazil Index Fund (EWZ) and the Market Vectors Russia ETF (RSX) stand out as two attractive energy proxies.

 

Both EWZ and RSX are headlined by massive energy enterprises. Within EWZ, the large state-owned energy giant Petroleo Brasileiro (PBR) accounts for approximately a fifth of the index, making it the fund's largest position. Meanwhile, a trio of energy Goliaths dominate RSX's top five positions. Collectively, Lukoil (LUKOY), Gazprom (OGZPY) and Rosneft represent a 23% slice of the fund's index.

 

RSX's oil exposure goes beyond these three names, however. In total, companies involved in the production of oil, gas and other components of the energy spectrum represent close to 40% of the fund's total portfolio.

 

The developed world boasts a number of energy-dominant players as well. Two ETFs that internationally minded energy bulls should keep on their radars in coming months are the Global X FTSE Norway 30 ETF (NORW) and the Guggenheim Canadian Energy Income ETF (ENY).

 

Thanks to their abundant supplies of natural resources, both Canada and Norway are projected to be major global energy contributors down the road. In late 2010, Canada's finance minister, Jim Flaherty, highlighted Canada as an "emerging energy superpower."

 

Both ENY and NORW target the energy industries of their respective nations. NORW's index is headlined by Statoil (STO), which alone accounts for nearly 20% of the fund's index. From a sector perspective, oil and gas companies account for a combined 40% of the portfolio.

 

ENY is different from the other ETFs listed above. Rather than attempting to capture the broad Canadian economy, this Guggenheim product tracks a basket of royalty trusts and companies involved in the nation's oil sands industry, thereby providing energy-minded investors with a pure-play option.

With markets around the globe recovering and developing, the prospects for the energy industry appear promising. Investors looking for exotic ways to capture this upside may find attractive opportunities from international funds such as EWZ, RSX, NORW and ENY.

 

TheStreet contributor Don Dion owns Dion Money Management. At the time of publication, Dion Money Management owned ENY.

 

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