Thanks to more fuel efficient cars, a sluggish economy, and
increased technological innovation, the U.S. is poised to become
a force in the energy market once again. New fracking methods and
a lack of demand in the domestic market has dramatically
increased oil production over the past few years, and
simultaneously pushed oil imports to their lowest level in
that the U.S. would leapfrog both Russia and Saudi Arabia to
become the world's biggest producer of oil in just five years
time. The international organization also said that the U.S.
could become self-sufficient in energy by 2035 and a net exporter
of natural gas by the end of the decade (read
Three ETFs for the Unconventional Oil
Clearly if these trends hold it could have an enormous impact
on the American economy and once again allow global energy firms
to focus on the U.S. market as opposed to dictator-run
petro-powers from across the Middle East and increasingly in
smaller markets across Asia and Latin America as well.
If this happens, it could continue a surge in investment
interest in the North American oil market as oil companies from
around the globe flock to a relatively safe place to drill,
refine, and export oil from. Obviously this situation would be
good news for many firms in the oil and gas industry, making a
number of companies in this space interesting investments for the
long term (although not necessarily in the short-term).
However, as we saw with the
debacle, a look to a single energy firm can be extremely risky,
suggesting a more diversified approach should probably be taken.
Fortunately there are a dozens of energy
out there giving investors plenty of choices in the space (see
Inside The Forgotten Energy ETFs
Below, we highlight three ETFs that we think could be
particularly intriguing choices for a continued American oil
boom. Any of these should benefit if America continues to expand
its oil production levels and once again become a leader in
Market Vectors Oil Services ETF (
As more wells and drilling takes place across America, more
oil services and equipment will be required. Thanks to this
expansion in the home grown market, it seems likely that funds
targeting this segment of the oil industry could be a beneficiary
of the boom, with potentially a lower risk level as well.
Easily the most popular ETF in this segment is OIH, now from
Market Vectors. The ETF has over $1.2 billion in assets and sees
over four million shares in volume a day, suggesting low bid ask
spreads which only had to the fund's favorable cost level as
expense are at 35 basis points a year (read
Time to Buy Oil and Gas Services ETFs?
However, investors should note that the product is pretty
with 20% of the assets, followed by
at another 17% combined. Still, the product has a heavy U.S.
focus and a decent mid cap contingent, suggesting it should be
driven by the events in the North American market.
PowerShares S&P Small Cap Energy Portfolio (
As more large caps hone in on the fracking and oil production
trend at home, they will probably have to deal with small caps in
at least a few segments. That is because many of these pint sized
securities are 100% focused on the U.S. market and either have
claims to key and untapped areas, or important patents, factors
that are likely to make them top takeover targets as trend gets
Yet since we can never be sure of which will be targeted,
investors should look to PSCE for diversified exposure to the
space to play a 'rising tide lifts all boats' theory. The fund
holds roughly 25 stocks in its basket, but it remains somewhat
unpopular-despite low fees of 0.29% a year-so bid ask spreads
could be relatively wide for this fund (see
Crude Oil ETF Investing 101
Still, the product offers up a nice mix between equipment and
exploration/production firms with roughly a 50/50 split.
Additionally, the fund is relatively well spread out as no one
firm makes up more than 10% of assets, although four do account
for more than 8% each.
Market Vectors Unconventional Oil & Gas ETF (
At the heart of the American energy boom is fracking
technology. This process, which injects fluids into rocks in
order force oil and gas up to an extraction point, has been used
more extensively and effectively over the past few years to boost
yields at a number of oil and gas fields across the country.
While a number of companies use the technology on a regular
basis, those in the aptly-named FRAK truly thrive on it. This
fund consists of roughly 45 companies that are in the Market
Vectors Unconventional Oil & Gas Index, a benchmark that
looks to track the coalbed methane, coal seam gas, shale oil
& gas, and sands market, charging 54 basis points a year in
The Comprehensive Guide to Natural Gas ETFs
Top components include large caps like
EOG Resources (
is the third biggest component. Volume and AUM are still quite
low for this large cap focused fund-suggesting modest bid ask
spreads-- but it is arguably one of the better ways to play
booming American oil production in ETF form.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
ANADARKO PETROL (APC): Free Stock Analysis
BP PLC (BP): Free Stock Analysis Report
MKT VEC-UNC O&G (FRAK): ETF Research
MKT VEC-OIL SVC (OIH): ETF Research Reports
PWRSH-SP SC EGY (PSCE): ETF Research Reports
SCHLUMBERGER LT (SLB): Free Stock Analysis
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report