Three funds to buy to get exposure to oil
One of the best ways to gain exposure to emerging-market growth is through an oil play, says Paul Amery. Here, he tips three London-listed exchange-traded funds to buy now.
When Apple's rapid share-price decline caused it to lose its spot as the world's largest firm, one London-based executive at a multinational quipped: "The usurpers have lost and an oil company is back in its rightful position." Exxon Mobil had regained first place. For investors, it's worth remembering why 'Big Oil' is never far from the top.
Since the turn of the millennium, Cisco, GE, Microsoft and Apple have had spells as the table-topping share, as did Citi and HSBC before the 2008 crisis. But oil stocks are always thereabouts in the rankings. As well as Exxon Mobil, Chevron, BP, Total, Shell and Schlumberger are also in top 50 positions in the MSCI World index (which ranks global stocks by market capitalisation).
Oil and gas firms are a staple of equity portfolios, not least because they offer decent yields. The Stoxx Europe 600 oil and gas index, which features the region's major producers, yields just shy of 4% a year, for example. And investing in oil firms is one of the key ways of gaining exposure to the world's faster-growing regions.
Energy demand in developing (non-OECD) nations will rise 65% by 2040 from 2010 levels, Exxon Mobil forecast recently. So what's the best way for a European investor to gain exposure to oil and gas stocks via exchange-traded funds(ETFs)?
For those interested in high-yielding European oil and gas stocks, the db x-trackers Stoxx 600 Oil and Gas ETF (LSE: XSER) offers good value. Fees total 0.3% a year, while the fund trades with spreads of 30-35 basis points (0.3%-0.35%) on the London secondary market.
US oil stocks have lower dividends in aggregate: S&P's Energy Select Sector index yields just under 2%. But it offers diversified exposure to the big oil majors. Source's London-listed ETF (LSE: XLES) offers an easy way to invest. The fund charges 0.3% a year and has an average bid-offer spread of around 1%.
For those wanting exposure to globally listed oil exploration firms, the iShares S&P Commodity Producers Oil and Gas ETF (LSE: SPOG) is an obvious choice. It charges 0.55% in fees and usually trades with a bid-to-offer spread below 1%. When dealing in ETFs where US-listed stocks are included in the underlying index, remember you'll get better prices (via tighter spreads) once the New York market has opened.
Paul Amery edits www.indexuniverse.eu, the top source of news and analyses on Europe's ETF and index-fund market.