Which Energy ETF Is the Better Buy: State Street's XLE or First Trust's EMLP?
State Street's XLE and First Trust's EMLP are two energy ETFs with different investment strategies. XLE tracks the energy components of the S&P 500, while EMLP targets infrastructure and utilities, including master limited partnerships and renewable energy production.
Intelligence analysis by Llama
The State Street Energy Select Sector SPDR ETF (XLE) is a low-cost, pure energy exposure fund, whereas the First Trust North American Energy Infrastructure Fund (EMLP) provides a utility-heavy infrastructure play with higher fees. Both funds offer access to North American energy assets, but they approach the space with distinct strategies.
Imagine you're an investor looking for a way to invest in the energy sector. There are two main options: XLE and EMLP. XLE is like a straightforward oil and gas play, where you invest in companies that produce oil and gas. EMLP, on the other hand, is like a defensive, income-oriented energy infrastructure fund, where you invest in companies that provide steady, contract-based income. Both options have their pros and cons, and it's essential to understand the differences between them to make informed decisions about your investments.
Analysis
A Tale of Two Energy ETFs: XLE and EMLP
The State Street Energy Select Sector SPDR ETF (XLE) and the First Trust North American Energy Infrastructure Fund (EMLP) are two energy ETFs that cater to different investor needs. XLE is a low-cost, pure energy exposure fund that tracks the energy components of the S&P 500, while EMLP provides a utility-heavy infrastructure play with higher fees.
XLE is a straightforward oil and gas play, with ExxonMobil and Chevron accounting for roughly a third of the fund. This means XLE rises and falls closely with crude prices. When energy demand is strong and oil is expensive, XLE rewards investors handsomely. However, when commodity prices fall, the losses follow.
EMLP, on the other hand, is built for a different kind of investor. Its actively managed portfolio blends pipelines and energy infrastructure with a substantial allocation to regulated utilities, which generate steady, contract-based income regardless of where oil prices go. This defensive mix has delivered more consistent returns than XLE during volatile energy markets, but at a cost that is nearly 12 times higher.
For most long-term investors, XLE's simplicity, massive scale, and rock-bottom cost make it the more practical energy holding. EMLP appeals to those who specifically want a defensive, income-oriented energy infrastructure fund and are comfortable paying a significant premium for active management and utility exposure.
The Cost Difference: A Headwind for EMLP
The 0.87 percentage point cost difference between XLE and EMLP represents a substantial headwind for investors in EMLP. While the trailing-12-month dividend yields remain similar, the higher fee for EMLP is a significant consideration for investors.
Performance and Risk Comparison
The performance and risk comparison between XLE and EMLP highlights the differences between these two energy ETFs. XLE has a maximum drawdown of 26.00% over the past five years, while EMLP has a maximum drawdown of 14.60%. This suggests that XLE is more volatile than EMLP.
What's Inside XLE and EMLP
XLE is 100% focused on the energy sector, holding 21 securities. Its largest positions include ExxonMobil at 20.19%, Chevron at 14.85%, and ConocoPhillips at 5.93%. EMLP, on the other hand, holds 65 securities, with a sector tilt of 54% utilities, 28% energy, and 8% cash and others. Its largest positions include Enterprise Products Partners at 7.73% and Energy Transfer at 7.59%.
Conclusion
In conclusion, XLE and EMLP are two energy ETFs that cater to different investor needs. XLE is a straightforward oil and gas play, while EMLP is a defensive, income-oriented energy infrastructure fund. While EMLP has delivered more consistent returns than XLE during volatile energy markets, the higher fee and cost difference make XLE the more practical energy holding for most long-term investors.
Key points
- XLE is a low-cost, pure energy exposure fund that tracks the energy components of the S&P 500.
- EMLP provides a utility-heavy infrastructure play with higher fees.
- XLE is a straightforward oil and gas play, while EMLP is a defensive, income-oriented energy infrastructure fund.
- The 0.87 percentage point cost difference between XLE and EMLP represents a substantial headwind for investors in EMLP.
- XLE has a maximum drawdown of 26.00% over the past five years, while EMLP has a maximum drawdown of 14.60%.
If the energy demand remains strong and oil prices continue to rise, XLE could reward investors handsomely. Additionally, the steady, contract-based income generated by EMLP's utility-heavy infrastructure play could provide a stable source of returns for investors.
If the energy demand weakens and oil prices fall, XLE could experience significant losses. Additionally, the higher fee and cost difference for EMLP could make it less attractive to investors, potentially leading to a decline in its value.