XOP vs AMLP. Is a Midstream or Upstream Energy ETF the Better Buy as Oil Prices Stay High?
One fund yields 7.9% while the other charges a far lower fee, and their risk profiles diverge sharply over five years.
The Alerian MLP ETF (AMLP) and State Street SPDR S&P Oil & Gas Exploration & Production ETF (XOP) are two prominent energy ETFs with distinct focuses and investment strategies. AMLP targets midstream energy infrastructure, providing high-yield exposure to energy infrastructure master limited partnerships (MLPs) that earn cash flow from transporting and processing energy commodities.
XOP, on the other hand, targets upstream producers within the oil and gas sector, offering exposure to integrated companies and those focused on refining and marketing.
One key difference between the two is cost, with XOP offering a significantly lower expense ratio than AMLP. Additionally, AMLP has a more concentrated portfolio of 20 holdings, with the top 10 holdings accounting for more than 96% of assets. This concentration brings some risk, as a single issue could significantly impact the fund's performance. In contrast, XOP is more diversified, with 51 holdings spread across large-, mid-, and small-cap stocks, reducing the risk of a single stock's underperformance.
Historically, AMLP has outperformed XOP in various time frames, with higher 3-, 5-, and 10-year annualized returns. This difference can be attributed to the high dividend yield offered by AMLP, which may be more appealing to tax-sensitive investors. However, investors should also consider the trade-offs between the high-yield, concentrated MLP focus of AMLP and the diversified, lower-yield exposure provided by XOP.
Ultimately, the choice between these two ETFs will depend on an investor's priorities, risk tolerance, and investment goals within the volatile energy sector.
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