Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some global energy stocks to your portfolio, the iShares MSCI Global Energy Producers ETF (NYSEMKT: FILL ) 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.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.39%. The fund is very small, though, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF is too new to have a sufficient track record to assess. 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.
Energy is a defensive sector, as demand for it doesn't drop by a lot when economic times get tough. Interest in alternative energies is definitely growing, but we're still quite dependent on good old oil and gas. Thus, oil and gas exploration and production companies are worth considering -- and some of them have been getting involved in alternative energies, too.
Some energy companies had strong performances over the past year. Phillips 66 (NYSE: PSX ) has been profiting by processing cheap U.S. oil and then selling it at higher prices in Latin America and Europe -- thereby helping keep fuel prices in the U.S. high. Phillips management recently signaled confidence via a dividend hike of about 25% -- its yield is 1.9% now. The stock took a bit of a hit recently due to proposed sulfur-reduction regulations from the EPA that would result in greater expense for the company, in order to comply. Meanwhile, Phillips is spinning off a master limited partnership.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Apache (NYSE: APA ) , yielding 1.1%, shed 19% over the past year, in part due to lower-than-hoped-for production levels. But that's due to the company investing capital in projects that won't immediately bump production much. Only 11% of Apache's revenue last year came from natural gas, and unlike some peers, it's cash-flow positive as well. It hiked its next dividend by a big 18%, and its plans to drill more wells are also promising. On various counts, the stock seems inexpensive. Meanwhile, a board member recently bought some $740,000 worth of shares.
Suncor Energy (NYSE: SU ) shed 4%, and yields 1.8%. It's Canada's largest energy company, with expertise in deep oil sands. The company recently canceled its plans to upgrade its Voyageur plant in northern Alberta, due in part to competitive pressures. Thus, it will likely just ship more oil to refiners to do much of the processing work. The company is vulnerable to possible tightened regulations due to the recent pipeline oil spill in Arkansas. Some like its diversification beyond North America.
Canadian Natural Resources (NYSE: CNQ ) slid 2%. It's Canada's second-largest energy concern and yields 1.6%. It owns a lot of land, but some of its properties offer oil that's expensive to produce. Analysts at Zacks downgraded the stock in March, citing operational challenges and natural gas weakness as some concerns. Some see it as a possible takeover target.
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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