Your Money: Invest in energy in various ways

An improving global economy has prompted a rise in the price of energy, especially in oil, which rose again to more than $100 a barrel last week and could head higher. If you want to energize your portfolio, here are ways to take advantage of this trend.

For investors looking for exposure to global commodities and energy, there are plenty of low-cost exchange-traded funds. A new paper by SEI, the local fund giant, shows that assets in ETFs continue to grow, reaching $1.06 trillion in 2011. Just the fourth quarter 2011 alone saw $115 billion in asset inflows and 59 new ETF launches, SEI reported.

Among the commodity-related ETFs out there are IQ Global Resources ETF (GRES), a broad commodities/resources ETF, with holdings such as ExxonMobil (XOM) and commodity sub-sectors on timber, water, and coal.

IQ Global Oil Small-Cap ETF (IOIL) provides global exposure to the small-cap end of the oil industry.

"We continue to believe that we are in the midst of a multiyear bull market for commodities," says Adam Patti, chief executive officer at IndexIQ in Rye Brook, N.Y. "The factors that have driven this trend remain in place: growing populations, limited resources, and demand from the emerging markets."

There are 50 or so oil and gas energy-related ETFs, but they often come with hefty fees, so it's important to screen them on an expense-ratio basis: EGShares Energy GEMS (OGEM), for instance, has a fairly high expense ratio of 0.85 percent, while the Select Sector SPDR-Energy (XLE), the Vanguard Energy Index (VDE), and the Focus Morningstar Energy Index ETFs (FEG) have much lower fees, about 0.20 percent annually as a net expense ratio.

There are also individual energy companies with shares that yield a dividend. Mark Luschini, chief investment strategist at Janney Montgomery Scott, overseeing more than $54 billion for the firm, says conventional wisdom limits investors to utilities and telecommunications for dividend income. But sectors such as energy also boast stable franchises accompanied by dividend yields, such as Consolidated Edison (ED) with a 4.17 percent yield.

Not everyone is riding the energy wave via oil and gas. Some, like local brokerage kahuna Howard Butcher IV, formerly of Butcher & Singer, are pursuing nontraditional energy investments such as solar, wind, and nuclear power.

Butcher was first active in the energy, natural-resource, and power-generation industries in the 1980s and now serves as a director of Butcher Energy Inc. of Exton, Pa., an energy-development company active in wind-farm development, solar energy, and oil and gas exploration and development.

His investments in nuclear energy include Alternate Energy Holdings Inc. (AEHI), which is building a proposed nuclear power plant in Payette County, Idaho. "It's the first publicly traded independent nuclear generating company" in the United States, he says.

But energy is fraught with risks: consider Warren Buffett, the Oracle of Omaha, who over the weekend revealed to shareholders that a good chunk of his company Berkshire Hathaway's (BRK/A) earnings now come from investments in energy and railroads, and therefore are subject to the good graces of regulators.

Another of his investments also reported lower earnings: Profit at utility unit MidAmerican Energy Holdings Co. fell to $316 million from $344 million a year earlier. MidAmerican Energy sells electricity to homes in the United States and the United Kingdom, and has been investing in renewable-energy projects, from the $2 billion Topaz solar project in California to wind farms in Iowa.

Also, Buffett wrote in his shareholder letter (link: http://www.berkshirehathaway.com/2011ar/2011ar.pdf) that he spent about $2 billion buying bonds issued by Texas utility Energy Future Holdings. But those bonds are now worth just $878 million, and could fall to zero, he said.

In his letter, Buffett admitted misjudging the company's prospects and that natural gas prices would stay unusually low. "In tennis parlance, this was a major unforced error by your chairman."