Investing in Energy ETFs As Winter Heats Up

January 13th at 6:00am by Tom Lydon

winter_christmas_petersburg_268205_tn Last year was a boon for energy-focused exchange traded funds (ETFs), attracting billions in investor dollars, despite “wildly uneven” returns. Some funds were up by double digits for the year, others down by as much.

The rapid growth and extreme popularity of energy-focused ETFs occurred even as some funds saw poor performance and others were being eyed by regulators and the Commodity Futures Trading Commission (CFTC). Brain Baskin for The Wall Street Journal reports that net cash flow into the funds totaled $30.1 billion in 2009, up from $13.4 billion in 2008, according to the NSX. Note that this is referring to long-only funds. [Commodity ETFs brace for regulations.]

ETF Daily News on iStock Analyst ponders which ETF is best: one that holds futures or one that holds equities? It’s largely a question of an investor’s conviction in the outlook for energy prices. ETFs that hold equities may not be as sensitive to day-to-day price movements, while futures ETFs can satisfy an appetite for risk and high reward potential.

Investors in gas and oil ETFs should note that the performance in either type of fund may not match changes in the spot prices for oil and gas over time because of price variations among different months’ futures contracts. The only way to capture those exact price changes is to buy and hold barrels, as U.S. Commodity Funds’ John Hyland puts it. Have you got the space for that? [How to play energy with ETFs.]

Alex Kennedy for ABC News reports that according to the Energy Department, crude supplies are up. Cold weather in parts of the U.S., Europe and Asia have helped support the recent jump in oil prices, as traders expect supplies of crude products such as heating oil to run low. For now, in the Northern Hemisphere, colder weather is helping to keep energy prices hot. [Natural gas has the weather on its side.]

For more stories about energy, visit our energy category.

  • United States Oil Fund (NYSEArca: USO)

  • Energy Select Sector SPDR (NYSEArca: XLE)

  • iShares Dow Jones U.S. Oil and Gas Exploration (NYSEArca: IEO)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.