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 keep generating profits as our global economy keeps demanding its energy, the iShares Dow Jones U.S. Energy ETF (NYSE: IYE ) 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 energy ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.
This ETF has performed well, beating the S&P 500 handily over the past five and 10 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 an ultra-low turnover rate of 6%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
This ETF's components were a mixed bag when it came to performance in 2011. Marathon Petroleum (NYSE: MPC ) shed about 13% in its first half-year after being split off from Marathon Oil (NYSE: MRO ) , which gained 28% over the year. Now a major refiner, Marathon Petroleum has been expanding its capacity and can also get more sweet crude processing work from various shale projects.
Chesapeake Energy (NYSE: CHK ) is down around 10% so far in 2011. The U.S. is the world's largest natural gas producer, and Chesapeake is the second largest American producer, after ExxonMobil (NYSE: XOM ) and ahead of Anadarko (NYSE: APC ) . Its insiders are bullish, as director Lou Simpson, who used to buy stocks for Berkshire Hathaway, bought 100,000 shares a while back. Still, many investors have much disdain for those insiders, as the company is not exactly a poster child for good corporate governance.
Falling 38% was Transocean (NYSE: RIG ) , which is mired in a sea of uncertainty, finding that complying with various regulations is costly, while it tries to avoid paying much for the Gulf oil spill. Its potential liabilities there should -- and do -- weigh on investors' minds.
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.
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