As crude oil enters 2025 in an elevated range due to increasing global energy demands and many new investments in offshore production, energy stocks could be due to rise. Energy firms had a lackluster year in 2024, but a renewed focus by the new administration on incentivizing an increase in energy production by loosening regulations over drilling on federal lands could help boost the sector. If OPEC restrains production, as many analysts expect, it could also lead to higher oil prices and a boon for energy firms.
As an investor in the energy sector, it can be difficult to surmise which specific companies are most likely to benefit from these national and global trends. One approach for those broadly bullish on the energy sector in 2025 is to instead cast a wide net via an energy exchange-traded fund (ETF). These funds can offer exposure to a swath of the energy sector without requiring an investor to make specific stock picks.
Three energy funds, in particular, might be poised for a strong year for a variety of reasons. Keep in mind, though, that there are dozens of energy ETFs available in the United States, including a wide variety of focuses, risk levels, and portfolio types.
Alerian MLP: Targeted MLP Play, Impressive Returns
In the past year, as of January 23, 2025, the Alerian MLP ETF (NYSEARCA: AMLP) has returned an impressive 29.55%, beating the broader market and many other energy funds. This ETF focuses on midstream MLPs, or master limited partnerships, pass-through entities that invest in midstream infrastructure and which typically provide a steady income stream and tax advantages to investors.
Alerian's MLP ETF specifically targets MLPs earning 50% or more of EBITDA from assets that aren't directly exposed to changes in commodity prices. Theoretically, this should provide increased stability over other energy sector companies, some of which are closely correlated to commodity prices.
For its specialized focus, investors will pay a premium to invest in AMLP. The fund has an expense ratio of 0.85%, higher than many alternatives in the space. Still, its strong asset base of $10.6 billion and 1-month average trading volume of 1.6 million should provide ample liquidity for investors looking to gain easy, steady exposure to MLPs. The fund's impressive dividend yield of 5.6% is an added bonus for investors looking for steady passive income.
InfraCap MLP: Leveraged Play on MLPs
The InfraCap MLP ETF (NYSEARCA: AMZA) is a similar play to AMLP above, although it is actively managed. AMZA also focuses on midstream MLPs, with a particular emphasis on those companies with high current income. AMZA employs leverage in the range of 20-30%, options strategies to boost income, and MLP beta.
For its differences in approach to AMLP, AMZA actually shares many of the same portfolio elements, including leading MLPS like Plains All American Pipeline, L.P. (NYSE: PAA) and Energy Transfer LP (NYSE: ET) among its top constituents.
However, its more aggressive, slightly higher-risk strategy has led AMZA to beat AMLP's returns over the last year. During that period, AMZA has returned 43.5%. It also enjoys a dividend yield of 5.1%, making it a great choice for investors looking for stable income potential in an energy ETF.
Energy Select SPDR Fund: A Timeless Energy Play
The Energy Select Sector SPDR Fund ETF (NYSEARCA: XLE) is a benchmark for the broader energy sector in the United States. This large-cap fund tracks about two dozen major energy firms in the United States and enjoys more than $35 billion in managed assets. Liquidity will likely never be an issue with this fund, as its status as the go-to energy ETF ensures that it has millions of trades each month.
XLE underperformed the other two funds above, with just under 18% gains in the year up to January 23, 2025. However, it comes in well below both of those ETFs when it comes to fees—XLE has one of the lowest expense ratios in the sector at just 0.09%. This makes it an excellent choice for investors looking to execute a broad lean toward the energy business when the sector is thriving.
There are two things that investors might keep in mind before jumping into XLE, however: first, the fund's portfolio does not include smaller firms or non-U.S. companies, meaning it maintains a focused approach on a key portion of the U.S. energy market; second, the largest names in the portfolio often represent a sizable portion of assets, so XLE is not for investors looking to weight positions more equally.
