Your Go-To Energy ETF List – Part 1

| March 4, 2015 | 0 Comments

energyAn Energy ETF For Every Need!

We’ve been talking a lot about Exchange Traded Funds (ETF) and Exchange Traded Notes (ETN) in recent articles.  These relatively new products offer investors a simple and efficient means to invest/trade in various industries and markets.

The energy markets are no exception.  There are numerous commodity ETF and ETN products allowing investors to capitalize on price fluctuations in energy commodities.

But like any group of products, some are better than others.  That’s why I’m providing you with a list of the best energy ETFs and ETNs Wall Street has to offer.

To make the cut, the product must meet two criteria:

  1. An expense ratio of equal to or less than 0.90%.
  2. Sufficient intraday liquidity, which makes opening/closing a trade easier.

If you don’t know what an expense ratio is, check out a recent dialogue I had with readers.  And if you don’t know the difference between an ETF and ETN, be sure to read this article.

Let’s get to it!

Energy ETF: Individual Energy Commodity 

Obviously, there are several different energy commodities.  As a result, there are quite a few ways to play energy trends via commodity ETF/ETNs.

We’re going to break down the best alternatives by 1) individual commodities (bullish and bearish), and then by 2) commodity groups.

And keep in mind, I’m not including leveraged ETF/ETNs in today’s list.  You’ll see a comprehensive list on that subject soon!

So with further ado, here are the best Energy ETF/ETNs in the marketplace…

Crude Oil – Bullish

US Oil Fund (USO) – Here’s the go to choice for anyone looking to trade West Texas Intermediate (WTI) crude.  The ETF tracks the price of WTI.  There’s a ton of liquidity in USO so it’s great for intraday trading.  The only downside to USO is that you get a pesky K-1 come tax time.

US Brent Oil Fund (BNO) – This ETF is just like USO, except that it tracks Brent crude, which is the European benchmark for crude prices.  BNO has the highest expense ratio in this list at 0.90%.  It also issues a K-1.

US 12-Month Oil (USL) – This is a similar product to USO except it tracks WTI using a slightly different method, which is better for longer-term investors.  Unfortunately, it still issues a K-1.

S&P GSCI Crude Oil Total Return (OIL) – A great alternative to USO since it tracks WTI and has ample liquidity.  And the best part is there’s no K-1 to file!

PowerShares DB Oil Fund (DBO) – Another option for anyone bullish on WTI, but it still issues a K-1.

Crude Oil – Bearish

US Short Oil Fund (DNO) – This one is just like USO, only it tracks crude inversely.  In other words, when the price of crude falls, DNO will rise.  Again, the only real downside is the K-1 issuance.

Natural Gas – Bullish

US Natural Gas Fund (UNG) – This top-tier natural gas tracking ETF comes from the same company that manages USO.  There’s ample liquidity in UNG so it’s great for short-term trading.  The only downside is the ETF still produces a K-1 statement come tax time.

US 12-Month Natural Gas Fund (UNL) – Similar to UNG except it tracks natural gas futures using a different method, which is better for long-term investors.

DJ-UBS Natural Gas Total Return ETN (GAZ) – While it meets our liquidity and expense ratio criteria, GAZ would not be first on my list for natural gas ETFs.  GAZ has experienced considerable performance tracking errors in the past.  Use extreme care if you trade GAZ.

Natural Gas – Bearish

There are no inverse natural gas ETF/ETNs except for leveraged funds, which I’ll provide in another issue.

RBOB Gasoline

US Gasoline Fund (UGA) – This is the only way to trade gasoline prices short of opening a futures account.  UGA has acceptable liquidity and a low expense ratio, but still issues a K-1.

Heating Oil

US Diesel Heating Oil Fund (UHN) – Like UGA, this is the only way to trade heating oil using ETFs.  However, the liquidity in this fund is quite low.  If you insist on trading UHN, make sure you’re patient with your entry/exit price.

Now that we have the individual energy commodity ETFs out of the way, let’s look at different ways to play overall energy industry trends…

Energy ETF: Commodity Groups

While I’m not a big fan of them, there are a number of commodity ETFs that group different energy commodities together.  This formula allows investors to play broader energy industry trends.

Here are a few of the better ones…

DB Energy Fund (DBE) – The ETF holds a nearly equal weight of five energy commodities- WTI Crude, Brent Crude, Natural Gas, Heating Oil, and RBOB Gasoline.  If you see the entire energy industry entering a bullish cycle, this may be a good option for you.  And while it’s not as liquid as the ETFs above, it’s sufficient for the average investor.

ELEMENTS Rogers Intl. Commodity Index- Energy Total Return (RJN) – RJN holds everything DBE does, with the addition of Gas Oil.  But the biggest difference between RJN and DBE is the fact RJN is not as equally weighted across all its holdings.  In fact, 40% of the RJN portfolio consists of WTI crude, while heating oil makes up just 4.5%.

There you have it…

What you see above are the best energy commodity ETF/ETNs the market has to offer.  As you’re likely aware, there are certainly others not included on this list.  But due to a high expense ratio or low liquidity, it’s best you steer clear of them and stick to ones above.

And remember, in coming weeks, we’ll be looking at the best leveraged commodity ETF/ETNs, as well as a few equity ETFs that every energy investor needs to know! 

Until Next Time,

Justin Bennett

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.

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Category: Commodity ETFs

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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