This Gas and Oil ETF Can Pump Up Your Portfolio

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some gas and oil stocks to your portfolio, the iShares Dow Jones U.S. Oil and Gas Exploration Index ETF (NYSEMKT: IEO  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this gas and oil ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The gas and oil ETF's expense ratio -- its annual fee -- is a relatively low 0.47%. The fund is on the small side, too, 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 to this gas and oil ETF.

This gas and oil ETF requires faith in the future, as its past has been disappointing, underperforming the world market over the past three and 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.

Why gas and oil?
Gas and oil companies as well as gas and oil ETFs are worth considering because despite growing interest in alternative energy, we're still quite dependent on good old fossil fuels.

More than a handful of energy companies had strong performances over the past year. Valero Energy (NYSE: VLO  ) soared 94%, for example, as refiners have been doing well recently. The company is poised to benefit from the proposed (and controversial) Keystone XL Pipeline, and has been investing in railcars to boost profits from the Bakken shale fields. It also spun off the promising CST Brands convenience-store business. A concern, though, is proposed legislation to reduce corn ethanol production, as Valero is a major producer of it.

Natural gas specialist Cheniere Energy (NYSEMKT: LNG  ) surged 84%, amid great expectations for its planned liquid natural gas (LNG) export terminal to ship gas procured relatively inexpensively here to regions where it fetches a much higher price. It's facing greater competition lately, though, as more companies seek approval to transport natural gas to nations without free trade agreements with the U.S. If they win that, natural gas prices might rise in the U.S., and that could benefit another company in this gas and oil ETF: Chesapeake Energy (NYSE: CHK  ) .

Chesapeake gained 35% over the past year. Long reviled (and rightly so) by many due to questionable and regrettable management moves, it has been selling assets in order to pay down its significant debt -- but the prices it's getting for these assets have not been as high as hoped. It's not a lost cause, though, as the company's major presence in the Utica shale field, among other places, is promising.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Exploration and production specialist Whiting Petroleum (NYSE: WLL  ) shed 4%. It's a major operator in the productive Bakken region, and its first-quarter earnings report featured record production, with double-digit growth expected in 2013. Some have been disappointed with its hedging strategy, though. Bulls like its well positioned and sizable asset portfolio, and the company has seemed undervalued as well.

The big picture
Demand for gas and oil isn't going away anytime soon. A well-chosen gas and oil ETF can instantly plunk you in the industry -- and make investing in and profiting from it that much easier.

Energy investors would be hard-pressed to find another company trading at a deeper discount than Chesapeake Energy. Its share price depreciated after negative news surfaced concerning the company's management and spiraling debt picture. While the debt issues still persist, giant steps have been taken to help mitigate the problems. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.


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