3 Energy ETF Plays for Year-End

NEW YORK (TheStreet) -- With the shakeup in Congress, forecasts of rampant economic growth across developing regions of the globe, and winter upon us, the energy industry looks promising as we head into the close of 2010.

Using ETFs, investors can gain access to some of the most attractive aspects of this multifaceted industry.

Market Vectors Coal ETF ( KOL)

Economic forecasts for the coal industry in 2011 already appear promising given the growth prospects for emerging nations including India and China. As these nations seek ways to quench their insatiable thirsts for energy, coal will be an essential element.

Using Market Vectors Coal ETF, investors can get a front row seat to the coal industry's ascension. This fund is designed to track an index comprised of the largest and most liquid coal-related companies from around the globe. While producers and miners dominate its underlying holdings, KOL also sets aside a significant percentage of its portfolio for companies responsible for equipment and power generation. This makes for a well diversified play on the industry as a whole.

KOL will benefit from the resource's popularity across both emerging markets and the developed world. The United States and China command the fund's two largest geographic slices, representing 47% and 20% of the fund respectively.

Major KOL components include China Shenhua Energy, Peabody Energy ( BTU), China Coal, Joy Global ( JOYG) and Consol Energy ( CNX).

First Trust ISE Revere Natural Gas Index Fund ( FCG) (FCG)

A consistent favorite among investors and market commentators, natural gas will be in the spotlight as consumers crank up their thermostats in order to battle against the bite of winter. Playing this fuel, however, can be easier said than done.

Futures-based products such as iPath Dow Jones UBS Natural Gas Total Return Subindex ETN ( GAZ) and United States Natural Gas Fund ( UNG) have been locked on a steep downward path, leading to brand new all time lows. GAZ has been particularly troublesome as of late thanks to the massive premium it has developed.

While funds which tracking the physical commodity have faced their share of problems, equity-based products such as First Trust ISE Revere Natural Gas Index Fund and Fidelity Natural Gas Fund ( FSNGX) have managed to perform in a far more stable manner. The two funds have seen a 10% jump over the past 30 days.

As Chevron's ( CVX) acquisition of Atlas Energy ( ATLS) demonstrates, major names in the energy industry are willing to pay a big premium to gain exposure to the natural gas industry. This has lead many integrated oil majors including ExxonMobil ( XOM) and BP to be included within indices aimed at the natural gas industry.

The fact that FCG's portfolio includes a number of these big names may not sit well with investors looking to focus solely on natural gas. Therefore, investors looking for the purest play on natural gas may find the mutual fund option more to their liking.

Market Vectors Nuclear Energy ETF ( NLR)

Politically, the nuclear energy industry could be in for a lift as we head into the close of the year. However, with the increased Republican presence in both the Senate and the House of Representatives, the focus in the alternative energy debate will likely turn to nuclear energy as a suitable clean energy compromise.

Market Vectors Nuclear Energy ETF includes 24 major firms in this industry under one roof. Top holdings include Cameco ( CCJ), Paladin Energy ( EDF), and Constellation ( CEG).

This week, Entergy ( ETR) announced that it was in the process of shuttering two plants. NLR investors, however, were unscathed by this news. ETR is not listed among NLR's components and therefore had little effect on the fund's performance.

More influential to NLR's performance this week was Cameco's earnings report. Despite seeing a dip in third-quarter profit, the firm raised its projected uranium output for the year.Nuclear energy appears primed for upside strength in the near future.

However, like any alternative energy play, investors should keep a close watch on its performance. Macroeconomic conditions can still heavily influence the industry's performance, sending investors for a loop.

Written by Don Dion in Williamstown, Mass.

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At the time of publication, Dion Money Management does not own any equities mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

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