Better Energy Sector ETF: Vanguard Energy ETF or First Trust Infrastructure Fund?

First Trust North American Energy Infrastructure Fund (NYSEMKT:EMLP) offers diversified exposure to pipelines and utilities with higher yields, while Vanguard Energy ETF (NYSEMKT:VDE) provides low-cost, pure-play energy exposure.

Investors seeking energy exposure face a choice between broad sector tracking and targeted infrastructure. These two funds offer distinct paths: one focuses on the stable cash flows of utilities and midstream pipelines, while the other captures the wider domestic energy market from upstream producers to downstream refiners. This choice depends largely on an investor's appetite for volatility versus income. For investors looking to capitalize on energy prices or infrastructure stability, both funds provide liquid, established options.

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 cost difference is significant. Vanguard Energy ETF is considerably more affordable for long-term holders due to its low overhead. While First Trust North American Energy Infrastructure Fund carries a higher expense ratio, it may appeal to income-seekers due to its higher payout.

Performance & risk comparison

What's inside

Vanguard Energy ETF provides pure-play exposure to the domestic energy sector, holding 112 stocks. Its largest positions include ExxonMobil Holdings Corp (NYSE:XOM) at 21.90%, Chevron Corp (NYSE:CVX) at 14.08%, and ConocoPhillips (NYSE:COP) at 6.01%. This fund was launched in 2004. Vanguard Energy ETF has paid $4.08 per share over the trailing 12 months, which, on its recent ~$173.83 share price, works out to a 2.4% yield.

First Trust North American Energy Infrastructure Fund targets midstream companies and utilities, holding 58 positions. Its portfolio is divided between Energy (50%), Utilities (46%), and Industrials (4%). Top holdings include Enterprise Products Partners L.P. (NYSE:EPD) at 8.99%, Energy Transfer LP (NYSE:ET) at 7.65%, and Mplx Lp (NYSE:MPLX) at 4.47%. The fund was launched in 2012 and applies an ESG screen to its holdings. First Trust North American Energy Infrastructure Fund has paid $1.23 per share over the trailing 12 months, which, on its recent ~$41.32 share price, works out to a 3% yield.

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

Which looks like the better buy

To compare Vanguard Energy ETF (VDE) and First Trust North American Energy Infrastructure Fund (EMLP), investors should consider a few key factors. Let's have a look at them and see what that tells us about each fund.

To begin, there are differing strategies. VDE is focused on oil majors like ExxonMobil, Chevron, and ConocoPhillips. EMLP focuses on midstream and utility stocks like Enterprise Products, Energy Transfer, and MPLX.

The differences in strategy and holdings result in differing income potentials between the two funds. VDE has a dividend yield of 2.4%, while EMLP boasts nearly 3%. For income-seeking investors, that additional amount of income can be critical.

One final factor to weigh is cost. VDE has a very low expense ratio of 0.09%. EMLP, on the other hand, has an expense ratio of 0.95%, which is quite high. EMLP is actively managed, while VDE is index-linked. However, at nearly 1.00% per year in fees, investors who own EMLP are surrendering a significant portion of their returns and income to fees.

In summary, even though VDE and EMLP are both energy ETFs, they serve very distinct purposes and will attract different investors. VDE is best for cost-conscious investors who are seeking to add energy exposure and generate a moderate amount of income. EMLP is best for investors who want to own a basket of master limited partnership stocks, for tax or estate planning purposes, for instance. Nonetheless, EMLP's higher fees should be taken into account. For that reason, if I were selecting from these two ETFs, I would choose VDE for its diversity of holdings, simplicity, and low fees.

Jake Lerch has positions in Enterprise Products Partners and ExxonMobil. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends ConocoPhillips and Enterprise Products Partners. The Motley Fool has a disclosure policy.