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Time To Buy Oil ETFs For Your Portfolio?

November 14th, 2012

Jared Cummans: The past few weeks have been rough on crude oil, as the massive commodity has been seeing a major decline in price. But with a sudden drop, this fossil fuel may be offering in a nice entry point to investors looking to add some energy exposure to their portfolio. Since peaking in mid-September, crude has suffered losses of nearly 14%, as market turmoil has led to a healthy sell-off. Much of the speculation was sparked by the uncertainty over the presidential election and which candidate would come out on top.

Now that Obama has secured another four years in the office, crude may be able to make a comeback. Though Romney was seen as better for crude oil, the Obama administration will put plans in place to make the U.S. the largest producers of oil in the world in less than 10 years. Whether that actually happens is a different story, but with crude sitting well below $100/barrel, many investors are eyeing what could be a great buying opportunity. Below, we outline three ways to add crude to your portfolio when you decide it is time to hop in on this vital energy source.


  1. United States Oil Fund (NYSEARCA:USO): This fund tracks front-month WTI futures and is among the most popular commodity products in the world. Its single contract futures strategy means that it will not be a great candidate for long-term buys but rather as a trading instrument; USO trades more than 8.9 million shares each day [see also How to Trade Crude Oil Futures].
  2. Energy Select Sector SPDR (NYSEARCA:XLE): This fund will be a play on the production side of things, as it invests in the largest oil and gas companies in the US. Top holdings include big players like Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and Schlumberger (NYSE:SLB) among many others. The fund is home to more than $7 billion in assets and pays out a dividend of about 1.7%.
  3. Market Vectors Unconventional Oil & Gas ETF (NYSEARCA:FRAK): One of the more unique products currently on the market, FRAK is designed to offer exposure to companies that involved in unconventional oil and gas. For the most part these firms use budding technologies like fracking and are often considered the future of the energy industry. Note that this is a very young fund and does not offer exceptional liquidity, so investors will need to take a close look before investing.

Written By Jared Cummans From CommodityHQ 

CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.


NYSE:FRAK, NYSE:USO, NYSE:XLE


 

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