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These Energy ETFs Are Creeping Higher


Fortunately for investors, the roster of energy ETFs that have been quietly creeping higher in recent weeks does not begin and end with the Energy Select Sector SPDR.


Editor's Note: This content was originally published on by The ETF Professor.

Few sectors could match the lethargy and mediocrity offered by the energy sector in 2012. Using ETFs as the measuring the stick, the only select sector SPDR that performed worse than the Energy Select Sector SPDR (NYSEARCA:XLE) last year was the Utilities Select Sector SPDR (NYSEARCA:XLU).

By the time 2012 drew to a close, XLE was up all half a percent, indicating investors could have done far better with another SPDR: the SPDR S&P 500 (NYSEARCA:SPY). In what may be a case of last year's laggards shedding that ominous status, some energy ETFs have shown signs of life in recent weeks.

For example, the always volatile Market Vectors Oil Services ETF (NYSEARCA:OIH) ended 2012 on a strong note and is up 3.2% in the past month. XLE has not been a slouch either, posting a gain of almost 2% over the same time.

Fortunately for investors, the roster of energy ETFs that have been quietly creeping higher in recent weeks does not begin and end with XLE. Several other funds have been getting in on the act as well and some of the following have the potential to be leaders if the energy sector rebounds in earnest this year.

First Trust Energy AlphaDEX Fund (NYSEARCA:FXN)

As is often the case with many of First Trust's AlphaDEX ETFs, investors will find that over certain time frames, FXN proves to be a better bet than a traditional market cap-weighted ETF such as XLE. FXN has been the winner over the past 30, 90, and 180 days.

FXN offers several advantages over cap-weighted US-focused energy ETFs. For starters, Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) combine for just 5% of this ETF's weight. In an ETF such as XLE, those two stocks can represent 30% to 35% of the ETF's total weight. Second, FXN is highly diverse in that it offers exposure to integrated oil names, independent producers, refiners and services providers.

Finally, since FXN is not excessively weighted to large- and mega-cap names, the ETF has some sensitivity to a potential increase in energy sector mergers and acquisitions activity. At least five of FXN's 53 holdings are credible takeover targets and a case can be made for a few others.

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