Three Energy ETF Alternatives To XLE

April 19, 2011


Both XOP and IEO offer investors solid exposure to oil and gas producers, while shunning the super majors; they just do it in different ways.

They're also more volatile than XLE—unlike another energy-related fund that investors put capital into last week, the Alerian MLP ETF (NYSE Arca: AMLP).

AMLP is a fund that holds the stocks of energy-related master limited partnerships (MLPs), or "toll road" style firms that tend to operate midstream businesses, as opposed to oil and gas production. In particular, AMLP holds energy infrastructure plays: Think pipeline operators, storage terminal operators and the like.

Because an MLP's revenues depend only on the volume of a commodity passing through its operations and not the price of the underlying commodity itself, the asset is seen as a less volatile play on rising energy demand. MLP yields tend to be high and stable, making them attractive for income-minded investors. Recent fund inflows suggest that investors looking for higher-yield, more-conservative exposure to the energy sector seem to be turning to MLPs with interest; our April 8 Commodity ETF Flows report revealed that just two weeks ago, investors had piled $191 million into the JPMorgan Alerian MLP ETN (NYSE Arca: AMJ) as well.

As we examine the fund flows data each week, we will try to spot more interesting trends and investment ideas worth contemplating. Tune in this Friday for our next report.


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