Introduction
Energy ETF is based on underlying commodities such as crude oil and natural gas, securities of oil and energy sector companies. Energy ETF may also be based on alternative forms of energy such as clean energy (such as wind and solar).
The ETFs may be based on stocks of domestic companies or foreign companies. The index fund may be based on different types of sectors or different countries. Companies manufacturing power equipment, generating and distributing power are among the different sectors that may be included.
Energy ETF is a hybrid equity instrument and can include an entire sector index, both domestic and international energy producers. Energy ETFs are popular among almost all types of investors, small and big. Also, the energy sector represents an important part of any economy. The energy sector companies have a high allocation in the broad market indices such as BSE Sensex, S&P 500.
Understanding Energy ETFs
- Energy sector companies form part of the core industry in any economy. They attract huge investment and form part of one of the key drivers of growth.
- Energy sector ETFs are spread across different companies and thus diversify the risk associated with investments.
- Investors can consider exposure to stocks of energy companies through investment in energy ETFs.
- Most of the energy sectors companies are involved in long term projects.
- The energy sector consists of a complex set of companies involved in the generation and distribution of power. The financial performance of the sector depends on the production and demand, and price of the power.
- The energy sector is also sensitive to government policies. The projects in the sector involve natural resources and clearances from the government.
- The sector is also sensitive to international prices of commodities such as crude oil. The sector is also influenced by commodity futures prices.
- Investors also engage in intraday trading in ETFs.
