Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the energy industry to thrive over time, as our planet's population keeps growing and demanding more power, the Energy Select Sector SPDR ETF (NYSE: XLE ) 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 a lot of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The energy ETF's expense ratio -- its annual fee -- is a very low 0.18%.
This ETF has performed very well, handily beating the world markets over the past three, 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 3%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Many energy companies have not turned in the strongest performances over the past year, but they could see their fortunes change in the coming years. Halliburton (NYSE: HAL ) , for example, plunged 45%, but it's one of the world's largest fracking specialists, and is poised to benefit from an uptick in deepwater drilling and from providing necessary maintenance services to many oil rigs.
Chesapeake Energy (NYSE: CHK ) dropped 37%, as it continues to shock and dismay the investing world with its management and board behaving in ways that led my colleague Alyce Lomax to call the stock "vile." It looks like changes for the better are afoot, but many are still steering clear of the stock for now. It doesn't help that it's a huge natural-gas player at a time when natural-gas prices are very low.
Valero Energy (NYSE: VLO ) slipped 3%, but lower crude oil prices could mean lower input prices for refiners and thus higher profit margins. Valero has had a tough time lately, and recently shut down its Aruba refinery, which PetroChina may buy, handing Valero a loss and write-off.
Phillips 66 (NYSE: PSX ) doesn't have a one-year record, as it's newly spun off from ConocoPhillips. It's already one of the world's largest oil refining and marketing companies, though, growing its profit margins and planning to extend rail lines to shale oil fields.
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.
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