Investing in Energy ETFs

NEW YORK (TheStreet) -- Lately, the producer price index has shown exhuberance, indicating that economies are starting to bounce back, demand for products is improving and inflation should not be much of a worry.

In August, the PPI, which measures the average change in sales prices, rose 1.7%, after declines of 0.9% in July and 1.8% in June. The PPI's sister, the Consumer Price Index, better known as the CPI, is up 0.4% over the same month. This means that companies were able to profit by selling goods to consumers at a slightly higher price than it cost to make them, further enhancing the equity markets.

One issue that some have had with this recent rise in PPI is its heavy dependence on energy. In fact, when one eliminates food and energy from the reading, the PPI rose by only 0.2% in August. This further supports the importance of energy on the overall health of the economy.

As emerging markets continue to prosper, they will continue to demand energy to fuel their factories and businesses. Additionally, as the dollar's value declines, many have used crude oil as an alternative currency, or a hedge, which has driven overall commodity prices up.

Inflation definitely affects the PPI but doesn't appear to be much of an issue over the short term. Here are some ways to capitalize on this dependence on energy through these ETFs:

• iShares Dow Jones US Energy(IYE), up 43% from a March low of $22.71. It closed Monday close at $32.41.
• Energy Select Sector SPDR(XLE) up 44% from a March low of $38.12. It closed Monday at $54.71.
• iShares Dow Jones US Oil & Gas Exploration(IEO)iShares Dow Jones US Oil & Gas Exploration (IEO), up 73% from its March low of $29.40. It closed at $50.87 on Monday.

In dealing with these ETFs, keep in mind the inherent risks involved. To help mitigate these risks, an exit strategy is vital.