Inside the World of Energy ETFs

Inside the World of Energy ETFs


Table of Contents:

I. History of Exchange Traded Funds

II. The Advantages of ETFs

III. Why ETFs are the Perfect Vehicle for Energy Investors

 


Part One – History of Exchange Traded Funds


According to the history books, Exchange Traded Funds (or ETFs) got their start back in 1993, with the first fund being launched by State Street Global Advisors.

That fund – known as SPDR, or “Spider” – was designed to track the performance of the S&P 500 index…and to this day (ticker symbol SPY), it’s still the largest ETF in the United States.

As you might expect, ETFs were – in the beginning – a powerful tool reserved almost exclusively for institutional investors.

But, thanks to the popularity of index tracking, ETFs were soon being used by individual investors and quickly other companies – such as PowerShares, Barclays Global Investors and ProShares – began marketing ETFs to individual investors.

Within a short period of time, investors had the ability to invest in stock indexes all over the globe.

Within less than 10 years – by 2002 – there were nearly 250 ETFs available all over the globe…representing nearly $100 billion in assets under management.

And then things began to take off at an astounding rate.



In the decade that’s followed, the growth in ETFs has allowed individual investors to not only invest in a particular index…but also in specific market niches.

The growth by the end of 2010 has been astounding – with nearly $1 trillion under management in ETFs.

And according to several independent sources, ETFs combined to account for 29% of equity trading volume in 2010. That’s an astounding $18.2 trillion worth of trading!

At this very moment, 145 ETFs have $1 billion or more worth of assets – and no fewer than 500 ETFs have topped the $100 million mark.

As of the end of 2010, the three largest ETFs in the world were:

1. SPDR S&P 500 (SPY) -- $89.9 billion
2. SPDR Gold (GLD) -- $58.1 billion
3. iShares MSCI Emerging Markets Index (EEM) -- $47.5 billion.

 


Part Two – The Advantages of ETFs

No question about it…exchange-traded funds are among the most powerful investment vehicles ever invented.

When compared with mutual funds – or even traditional stock investing – ETFs come out on top in every way imaginable.

Let’s take a look three primary advantages…


* ETF Advantage #1 – Flexiblity – If you think the market – or a particular sector – is heading higher…an ETF can help you take advantage. If you feel certain this will happen…a leveraged ETF will help you “double down” on your hunch.

But what if you’re convinced a particular sector is headed for a nosedive? ETFs allow you to short the market as well.

Do you want to take advantage of the potential growth in India? You can buy an ETF designed to track that growth.

The flexibility in terms of choices is truly remarkable.

But ETFs also provide another kind of flexiblility in that you can buy and sell them during the course of the trading day just like a “regular” stock. With mutual funds, your money is “locked in” and you can only cash out at the end of a particular day…but with ETFs, it’s possible for you to get in and out with the same speed stock investors enjoy.


* ETF Advantage #2 – Complete Transparency – We’ve all read the stories about so-called “gold” mutual funds that only invest in a small percentage of gold stocks. The truth is, mutual funds are set up in a way that allows fund managers to deceive investors.

That’s not the case with ETFs – you know at all times where the fund’s assets are invested…and you never have to worry about a scandal where a fund manager cheats the little guy. ETFs have no managers…and there is no risk of not knowing – with complete certainty – where your money is invested.


* ETF Advantage #3 – They’re Less Expensive than Mutual Funds – Most people don’t realize it – or maybe they don’t care – but mutual funds can be very expensive. The average actively-managed fund charged around 1% in expenses in 2010…but with ETFs you pay roughly one-third of that amount! Some index-based ETFs charge fees as low as one-tenth of one percent. Try finding a mutual fund that cheap!








 



Part Three – Why ETFs are the Perfect Vehicle for Energy Investors

There’s no question about it…

Soaring demand for new energy sources – and the explosive growth in emerging markets – has created a once-in-a-lifetime opportunity for individual investors like you to make money.

But it’s important to realize that the old “needle-in-a-haystack” approach to energy investing is NOT the best way to build wealth.

You remember those days, don’t you? When you’d hear about an exploration company that had a good story…you’d plunk down some of your hard-earned cash…and you’d hope they struck oil.

Every once in a while – at a cocktail party, most likely – you might hear a story from someone who made a killing from an oil strike.

Of course, it was much more common to hear stories about investments that lost money.

But those days are over.

Thanks to the power of Exchange Traded Funds, you can harness the power of energy investing and make “speculator-sized profits” without visiting a single drilling site.

Let me show you how the ease and flexibility of ETFs allows you to take advantage of the opportunities we’ll see as part of the New Energy Revolution:


Own the World’s Greatest Energy Companies with Energy ETFs

Thanks to the specificity of the newly-launched ETFs, it’s possible to make a safe, easy investment on a particular sector of the energy market.

If, for example, it becomes clear that oil service companies are about to pop, it’s possible for you to “gobble up” nearly all of the oil service companies in a particular region with one simple transaction. All without the high risk involved with choosing a single stock…or the added cost that would be involved with buying a dozen or more stocks and paying multiple transaction fees.


Buy and Sell Commodity Futures With Ease

Interested in profiting from a rise in a particular commodity…but you don’t want exposure to individual companies? Or maybe you’re not interested in trading options or futures?

Rest easy…a commodity-based energy ETF allows you to take full advantage of a rise in a specific commodity without the hassle of opening a new account or learning any complicated new trading rules. Commodity-based ETFs allow you to essentially “wager” on the price of a commodity – up or down – with great ease.


Diversification is Simple with Energy ETFs

Every smart investor understands the value of diversification. It’s always important that your risk is spread among multiple sectors or markets.

So an energy-based ETF can offer you great diversification options. If you’re heavy in tech stocks, you can balance your portfolio by selecting an alternative energy fund or perhaps a natural gas ETF.

Instead of attempting to diversify by investing in specific companies – or even buying gold – you can instead make a simple, safer investment in an energy ETF to balance your portfolio with ease.

Take Advantage of Specific, Fast-Moving Opportunities

As I mentioned before, the “old way” of investing in energy was to try and strike it rich with risky exploration plays.

Those days are now behind us.

Thanks to the number of targeted energy ETFs available to you today, it’s possible for you to collect profits from a particular “niche” of the energy market without investing in individual companies…without examining balance sheets…and without understanding a geological survey.

Instead, if our research shows us that Canadian oil presents an opportunity…we’ll move quickly into an ETF designed specifically to track the Canadian oil market.

Energy investors still trying to get rich in 2011 by investing in individual companies are like confused drivers trying to reach a new destination without a GPS device or cell phone. Eventually, one of them might get to his destination…but it will be a long, painful process – with much more failure than success.

Why would you want to put yourself through such a torturous process?

Your smartest move is to stay plugged in to the up-to-the-minute recommendations being made by the ETF Energy Trader service. As each recommendation is made, I encourage you to do your own due diligence – and make sure the trade is right for you – before investing.