Make Money in Oil and Gas Exploration the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the oil and gas industry to thrive as the people on our planet continue to demand lots of energy, the iShares Dow Jones U.S. Oil and Gas Exploration Index ETF (NYSE: IEO  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%. This ETF has performed reasonably well, outperforming the S&P 500 (INDEX: ^GSPC) over the past five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 21%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Chesapeake Energy (NYSE: CHK  ) , for example, gained about 14% over the past year, and has many investors psyched about its dominance in the very promising Eagle Ford shale site in Texas. It has turned off many investors, though, with its lavish CEO compensation and apparent disregard for its shareholders.

Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Marathon Petroleum (NYSE: MPC  ) , recently spun off from Marathon Oil (NYSE: MRO  ) , is down more than 30% over the past three months. It's now America's largest independent oil refining and marketing company, and its rising profit margins have been boosting its earnings considerably, while its production capacity is also growing.

EOG Resources (NYSE: EOG  ) , down about 24% over the past year, is another big player in the Eagle Ford shale, and has been shifting its focus some, from gas to oil. It does a lot of drilling for other companies, such as Northern Oil & Gas (AMEX: NOG  ) , and with its strong track record, some speculate that it could be bought out.

The big picture
Demand for energy isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn about the best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these 10 Stocks for Your Retirement Portfolio.

Longtime Fool contributor Selena Maranjian owns shares of Chesapeake Energy, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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