Energy ETFs for Long-term Growth Investors

Feeling bold? With energy prices at 10 year lows, it could be time to add commodities to your portfolio. We highlight some ETFs that offer exposure to the oil and gas industry

Kenneth Lamont 1 February, 2016 | 9:29AM
Facebook Twitter LinkedIn



Kenneth Lamont: With the price of crude oil hovering at levels not seen for over a decade. Some investors may see this as a great opportunity to increase their exposure to the commodity.

One way in which this can be done is by investing indirectly in the equity firms that operate in this space. Investors can buy single stocks such as BP or Shell. Although this approach has a significant idiosyncratic or firm specific risk.

One way in which this risk can be diversified away is by investing in broad sector ETFs such as Lyxor World Energy ETF. By investing in this product investors diversify globally across energy firms operating in the oil and gas space.

Investors looking for a purer exposure to the price of oil may look at the iShares Exploration & Production ETF. This fund offers diversified exposure to the upstream segment of the oil and gas industry.

Upstream equities are generally considered to be particularly sensitive to movements in the price of oil. This can be seen in the relative underperformance of the ETF versus the Lyxor fund. Since the price of oil began to fall in mid-2014.

The three key advantages of investing in this way rather than directly using exchange traded commodities are firstly equity ETFs are UCITS compliant where ETCs are not. Secondly equity ETFs are simpler, investors needn’t concern themselves with the complexities of the futures markets.

Thirdly and perhaps most importantly equity ETFs are generally cheaper than ETCs which makes them more suitable for investors, investing over the medium to long term.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
iShares Oil & Gas Explr&Prod ETF USD Acc28.35 USD0.28Rating
Lyxor MSCI World Energy TR ETF C USD GBP  

About Author

Kenneth Lamont  is a passive funds research analyst for Morningstar Europe.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures