A Look at Vanguard’s Energy ETF

ETFtrends.com

The Vanguard Energy ETF (VDE) is given a four star rating from investment research company Morningstar. The ETF gives investors exposure to mega-cap energy giants such as Exxon Mobile (XOM) and Chevron (CVX), at a rock bottom price.

“Over the years, the diversification benefits seem to have been eroding. Over the past five years, VDE has been 79% correlated with the S&P 500. However, over the past three years its correlation has jumped to 90%. Still, the fund remains an effective tool for investors seeking to overweight the energy sector within a broadly diversified portfolio,” John Gabriel wrote for Morningstar. [Vanguard Cuts Fees on 22 ETFs]

The exposure to the oil giants through VDE is cost effective for those investors that do not want to choose individual stocks. XOM still makes up around 21% of the portfolio and pays a 2.5% dividend, reports Matt DiLallo for The Motley Fool. Chevron makes up around 13% of the portfolio, followed up by Schlumberger (SLB). The aforementioned oil companies are vertically integrated “majors” that operate across the board from refining to distribution, reports Gabriel. This helps to mitigate the exposure and risk to commodity price movements. [Sector ETFs for Obama and the Fiscal Cliff]

Ultimately, VDE is a play on rising global energy demand. The energy sector is capital-intensive and influenced by natural gas and crude oil prices. These factors are led by the supply and demand cycle. In general, fossil fuel prices can rise and fall at the drop of a hat, while the exploration side of the industry can take years to generate a profit. VDE costs 0.14%. [Sector ETF Opportunities Going into 2013]

The biggest influences in the global economy to the energy sector now is the continued economic growth in China and worries over the Eurozone debt crisis, which has yet to be solved.

Other energy ETFs:

  • iShares S&P Global Energy (IXC)
  • Energy Select Sector SPDR (XLE)

Vanguard Energy ETF

 


VDC, IXC, XLE, Energy, Sector ETFs
VDC, IXC, XLE, Energy, Sector ETFs

 

Tisha Guerrero contributed to this article.

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.