Latest news, trends and ideas for investing with exchange traded funds | ETF Commentary

Looking for an energy exchange traded fund without exposure to BP?

The WSJ’s Ian Salisbury may have the answer in his column Some Energy ETFs Sidestep BP Effect.  It turns out that, since BP is a UK company, the stock isn’t part of the indices tracked by some of the larger energy ETFs such as the Energy Select Sector SPDR (XLE) and the Vanguard Energy ETF (VDE).

Global energy ETFs are more likely to include BP.  For example, Salisbury points out that the iShares S&P Global Energy Sector Index Fund (IXC) has BP as the fund’s third largest holding.

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Exchange traded funds can play an important role in protecting a portfolio against inflation according to John Spence’s article Whip Inflation with ETFs.

Spence writes that using specialized exchange-traded funds to guard portfolios against inflation is becoming popular in light of massive government spending to combat the economic recession and the prospect of a weaker U.S dollar. The specific concern is that the Federal Reserve will be slow to raise rates once the U.S. economy turns the corner.

How can ETF investors protect their portfolios against rising prices?

TIPS

Spence suggests considering Treasury Inflation Protected Securities, or TIPS, as a straightforward way to purchase inflation insurance. TIPS ETFs include the iShares Barclays TIPS Bond Fund (TIP) and SPDR Barclays Capital TIPS (IPE). The SPDR DB International Government Inflation-Protected Bond ETF (WIP) follows inflation-indexed bonds in foreign markets.

Gold and Commodities

For investors seeking to use gold and other commodities as an inflation hedge, Spence mentions several ETFs including:

Metals
SPDR Gold Trust (GLD), iShares Silver Trust (SLV), PowerShares DB Gold Fund (DGL) and PowerShares DB Precious Metals Fund (DBP) and PowerShares DB Base Metals Fund (DBB)

Food

PowerShares DB Agriculture Fund (DBA)

Oil and energy

United States Oil Fund (USO), Energy Select Sector SPDR Fund (XLE)

Commodity baskets

PowerShares DB Commodity Index Tracking Fund (DBC), iShares S&P GSCI Commodity Indexed Trust (GSG)

Other Options

Spence also points out that some investors bet against the U.S. dollar (CurrencyShares Euro Trust (FXE) or PowerShares DB Dollar Index Bearish Fund (UDN)) or long term treasuries (ProShares UltraShort 20+ Year Treasury (TBT)) as ways to hedge against inflation.

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Investors looking for energy ETF alternatives have several choices.

Start with Van Eck Global’s Market Vectors Global Alternative Energy ETF (GEX). GEX tracks the Ardour Global Index(sm) which provides targeted exposure to 30 companies worldwide that are engaged in the alternative energy industry.

State Street offers three options in the SPDR Sectors. The Energy Select Sector SPDR® Fund (XLE) tracks the Energy Select Sector Index which is a composite of the energy sector of the S&P 500 (R) Index. The Energy Select Sector Index includes companies from the oil, gas & consumable fuels and energy equipment & services industries.

Other energy ETFs include the SPDR S&P Oil & Gas Equipment & Services ETF (XES) and SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Both ETFs track indices that represent sub-industry portions of the S&P Total Market Index.

The S&P TMI tracks all the U.S. common stocks listed on the NYSE, American Stock Exchange, NASDAQ National Market and the NASDAQ Small Cap exchanges. TMI is an equal weighted market cap index.

Vanguard’s Energy ETF (VDE) tracks the performance of the Morgan Stanley Capital International® (MSCI®) US Investable Market Energy Index. The index is made up of large, medium, and small U.S. companies whose businesses are dominated by either energy-related service and equipment or companies engaged in the exploration, production, marketing, refining, and/or transportation of oil and gas products.

Visit the sponsors’ websites for more information:

• Van Eck Global
• State Street
• Vanguard

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