Energy ETF

DEFINITION of 'Energy ETF'

A broad class of ETFs that includes funds focused on oil and gas exploration; the generation, distribution and retail sale of gas and other refined products; electric utilities and alternative energy production. Energy ETFs may invest in only United States-based companies, globally based energy companies, or a blend of the two.

BREAKING DOWN 'Energy ETF'

The offerings within the energy ETF class include replications of the energy-sector stocks found in the S&P 500, U.S. energy producers, global energy producers and funds of a particular sub-sector designation, such as nuclear, coal, gas, etc. The weighting of stocks within these ETFs can be market-cap based, equally-weighted or fundamentally weighted, based on financial metrics like net earnings and dividend yield.

Energy ETFs represent a sector that is widely held by both conservative and risky investors, because energy represents a large portion of the broad economy. This is evidenced by energy's high percentage allocation within broad market averages like the S&P 500.

Energy ETFs have the advantage of intraday pricing and trading, which can make them more attractive than similarly invested mutual funds. Investors should read the fact sheets and prospectuses carefully to be sure of what guidelines an ETF has with regards to similar focus areas, such as mining and commodities.

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