Energy ETF

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Uploaded on November 22, 2008 by Cake.Financial

http://www.cakefinancial.com

Today’s energy markets are booming, and that’s fueled demand for new ways to invest in the sector—including exchange-traded funds, or ETFs.

ETFs are investment vehicles. They work much like index mutual funds in that they hold assets in quantities mimicking an index. But, unlike mutual funds, ETFs trade on an exchange, like a stock.

Energy ETFs are simply ETFs that track energy-related securities. Some of them track broad market indices, such as the Dow Jones U.S. Energy Sector Index or the Goldman Sachs Natural Resources Index. Other track specific sub-sectors, such as oil, natural gas, or alternative energy. You can even get energy ETFs that invest only in foreign stocks.

Most investors won’t want to make energy ETFs the bulk of their portfolio—it’s simply too risky. But energy ETFs can be a good diversifier. That’s because they can help hedge your portfolio against rising energy prices, which can drive up inflation and drive down the prices of stocks.

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