ETF vs Direct Holdings: Energy Exposure Without the Volatility

The United States Oil Fund (USO) has surged 86% year-to-date, but investors seeking energy exposure without directly riding the futures curve have turned to the VanEck Energy Income ETF (EINC), which pays income from pipeline operators.

EINC has returned 24.54% with a 4.0% distribution yield, a reasonable performance for an investor looking for fee-based cash flow without daily oil volatility. However, a closer look at the fund's holdings reveals that the same exposure is available more cleanly elsewhere.

The top 10 holdings in EINC account for 59.21% of assets, with Enbridge, Williams Companies, TC Energy, and Kinder Morgan among the largest weights. The expense ratio is 0.46%, but it still represents a recurring toll on top of what the underlying companies already collect.

For an investor wanting toll-road economics, a purer version can be achieved by holding one or two of the largest operators directly. Enterprise Products Partners (EPD) offers higher payout and growth projects tied to LNG and NGL exports, with a yield in the mid-5% range above EINC's 4.0%. Kinder Morgan (KMI) is another option, as it issues standard 1099 forms and has a project backlog of $9.6 billion.