ETFs for the world's energy thirst
These funds should capture the strength of the power industry in 2011.
By Don Dion, TheStreet
The global energy industry will likely be an interesting region of the market to watch in the new year. As emerging markets turn to various fuel sources to feed their insatiable thirsts for energy, developed corners of the globe seek resources such as oil, coal and natural gas to prolong their ongoing recovery pictures.
ETF investors can use a number of strategies when it comes to capturing the strength of the energy industry in 2011. Products such as iShares Dow Jones U.S. Oil Equipment & Services Index Fund (IEZ) or Market Vectors Coal ETF (KOL) provide ample exposure to a diverse collection of energy-related companies worldwide.
Meanwhile, investors seeking more exotic ways to access energy may find a diverse collection of internationally focused ETFs satisfying as well. Funds such as Market Vectors Russia ETF (RSX) and iShares MSCI Brazil Index Fund (EWZ) dedicate large percentages of their portfolios to energy conglomerates, including Petroleo Brasiliero (PBR) and Gazprom (OGZPY).
However, while the energy-heavy portfolios of EWZ and RSX may be appealing, cautious investors may be put off by the added risk that comes with exposure to emerging markets. Luckily, there are energy-rich international products that focus on the developed world as well. These may better satisfy this type of risk tolerance.
The Guggenheim Canadian Energy Income ETF (ENY) and the Global X FTSE Norway 30 ETF (NORW) are two ways investors can take advantage of international energy in developed markets. As evidenced throughout December, the oil and gas industries of Norway and Canada are forecast to become increasingly essential to satisfying global energy demand.
Norway's energy-rich locale has become a major draw for China throughout 2010. Most recently, in mid-December, China Oilfield Services inked a large deal with Norwegian energy goliath Statoil (STO) in an effort to tap the nation's resources.
Statoil is listed as NORW's largest component, representing nearly 20% of the fund's total portfolio. From a sector perspective, oil and gas companies make up more than 40% of the fund's assets.
Canada's energy industry, meanwhile, is forecast to grow increasingly essential to the global economic picture as well. Recently, in comments made during a trip to New York, the nation's Finance Minister, Jim Flaherty, highlighted some of the Canada's many resource-specific strengths and pointed to the nation as an emerging energy superpower.
While there are a number of Canada-focused ETFs available, ENY is unique in that it provides investors with pure-play exposure to the Canadian oil and gas industries. The fund's index is composed of a basket of both oil and gas producers and royal trusts.
Aside from capturing the promise of Canada's energy sector, investors holding ENY are treated to a welcome distribution.
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