MLPX vs XOP: Which Energy ETF Fits Your Portfolio?

The Global X-MLP & Energy Infrastructure ETF (NYSEMKT:MLPX) targets midstream infrastructure and higher yields, while the State Street SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT:XOP) offers broader exposure to upstream energy production.

Energy investors often navigate the trade-off between the volatile extraction business and the steadier transport business. These two funds represent distinct strategies within the energy sector: one focuses on the companies pulling oil and gas from the ground, while the other targets the pipes and infrastructure moving energy to market. This analysis breaks down the differences in cost, yield, and portfolio concentration to help determine which approach may better suit a specific portfolio.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The State Street SPDR S&P Oil & Gas Exploration & Production ETF is the more affordable option with a 0.35% expense ratio. However, investors seeking income may find the Global X-MLP & Energy Infrastructure ETF more attractive due to its higher payout.

Performance & risk comparison

What's inside

Global X-MLP & Energy Infrastructure ETF focuses exclusively on the energy sector, holding 29 positions primarily in midstream infrastructure companies that transport and store commodities. This infrastructure focus often results in different price behavior compared to the more volatile extraction markets. Its largest positions include TC Energy at 8.9%, Williams Cos. at 8.86%, and Enbridge at 8.62%. The Global X fund was launched in 2013. It has paid $3.07 per share over the trailing 12 months, which on its recent ~$75.4 share price works out to a 4.1% yield.

State Street SPDR S&P Oil & Gas Exploration & Production ETF targets the oil and gas exploration and production segment with 51 holdings, providing a broader diversification across 95% energy and 4% basic materials. By using a modified equal-weighted index, the fund ensures that mid- and small-cap companies have a meaningful impact on performance alongside industry giants. Its top holdings include PBF Energy Class A at 3.89%, HF Sinclair at 3.27%, and Delek US at 3.26%. The State Street fund was launched in 2006. It has paid $3.25 per share over the trailing 12 months, which on its recent ~$187.5 share price works out to a 1.7% yield.

For more guidance on ETF investing, check out the full guide at this link.

Which looks like the better buy

Choosing between the XOP and MLPX ETFs comes down to which sector of the energy sector you want to invest in. XOP targets oil and gas exploration and production companies, whose success and failure are in many ways tied to commodity prices. This can generate massive upside potential, but also introduces more volatility, as seen by XOP's more than 50% maximum drawdown over five years.

MLPX is a bet on the midstream segment of the market, where companies transport and store the commodities. These companies sign long-term contracts and charge recurring fees for their services, meaning they're better for investors seeking income generation and stability, but they may fall short on growth. That's not to say that MLPX won't grow -- in fact, its growth over five years isn't that different from XOP's. But that's on a total return basis, meaning dividends were reinvested into the stock.

If you are looking to add comprehensive energy exposure to a diversified portfolio, it may be best to have positions in both ETFs. But if you're only looking to add one fund, be clear about what your investment goals are: income and stability, or growth potential.

Sarah Sidlow has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Delek Us and Tc Energy. The Motley Fool has a disclosure policy.