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How to Build an Energy Bull ETF Portfolio

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For those who can stomach the risk, allocations to energy can certainly pay off as demand continues to grow across developed and emerging markets alike.

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Historical Return Analysis

The adjacent table provides historical results for each component of this portfolio, as well as backtested results (as available) for the entire portfolio during 2008, 2009, 2010, and 2011. The table also shows how this portfolio performed relative to a popular stock market benchmark (SPY) and bond benchmark (AGG).

It is important to note that many of the ETFs used in this portfolio have relatively short operating histories, limiting the extent of valuable historical return analysis.

Many equity and commodity ETFs in this portfolio suffered significant losses in 2008, as the global recession hammered equity and energy prices around the world. It is worth noting, however, the remarkable performance of KOL, which gained over 100% in 2009. As the energy industry continues to recover, many of these funds have been able to make up previous losses, while some have greatly outperformed the broad stock market, as represented by SPY.

Portfolio Expenses

This portfolio is designed for long-term use consistent with a "buy, hold, and rebalance" strategy. As such, minimization of expenses is necessary to avoid return erosion resulting from compounding costs. To this end, we constructed a portfolio with a weighted-average expense ratio of 55 basis points, which is significantly lower than fees charged by actively-managed mutual funds, which can exceed 1.0%. The impact of this reduced cost structure over a 30-year time horizon is significant.



While this can certainly be used as an all encompassing group of holdings, those who wish to adopt an investment strategy that is tilted towards the energy sector can also use this model portfolio as a smaller part of their overall group of holdings.

Disclosure: Certain sections of this article were republished with permission from ETFdb.com. Click here to view the original portfolio. No positions at time of writing.

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Editor's note: This article by Daniela Pylypczak was originally published on Commodity HQ.
No positions in stocks mentioned.
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