Over the last two weeks, crude oil prices have crept higher on hopes of a continued recovery and increasingly strong demand from China. With some analysts anticipating that crude will continue to rise. many investors have begun tilting their portfolios more heavily towards energy ETFs, hoping that higher margins will lead this sector to outperform the broad market.

Those looking to make an ETF play on the energy sector will be quickly overwhelmed with options. There are several funds that offer direct exposure to crude oil through futures contracts (see our guide to crude oil ETFs for complete details). In addition, there are a handful offering more targeted exposure to the energy industry, including funds focusing on oil equipment and services (IEZ ) and exploration and production (IEO ).

But one of the biggest distinctions in energy ETFs is geographical. While most funds focus exclusively on U.S. companies in the energy sector, there are several that maintain a global focus. Some of these global funds maintain a significant amount of overlap with their domestic counterparts, while others offer an entirely different risk and return profile. We took a look under the hood of a pair of energy funds.

IXC vs. IYE

The iShares Dow Jones U.S. Energy Index Fund (IYE ) offers exposure to the domestic energy sector, while the iShares S&P Global Energy Index Fund (IXC ) has a more global focus. Despite the fact that IXC has less than half of its holdings in the U.S. these funds have delivered relatively similar returns historically, and maintain many similar holdings.

About 75% of IYEs holdings are  in oil and gas producers, while the remaining 25% is mostly in equipment, services, and distribution companies (such as Schlumberger). Similarly, IXC has a heavy tilt towards oil and gas producers, with Exxon, BP, Chevron, Total, and Shell comprising the five largest holdings and accounting for more than 35% of total assets.

One reason for the strong correlations is the global nature of most large energy companies (particularly oil and gas companies). Exxon Mobil, the largest holding in both IXC and IYE, generated only about 15% of its upstream earnings in the U.S. through the first six months of 2009. The idea of a domestic fund refers primarily to the location of its headquarters and the exchange on which the company is primarily traded. International companies included in the global energy ETF, such as BP PLC and Royal Dutch Shell PLC, are generally global firms that derive their revenues from all regions of the world. While these companies are headquartered in Europe. they tend to be impacted by the same factors as those listed in the U.S.

The similarities between IXC and IYE are numerous. In addition to an identical expense ratio, the funds have approximately the same number of holdings. Exxon Mobil, Chevron, Schlumberger, ConocoPhillips, and Occidental Petroleum Corp. each have an allocation of more than 2% in both ETFs (in aggregate, these companies accounted for 52% of IYE and 30% of IXC as of October 21). This significant overlap in holdings has led to pretty similar returns between the funds. Although IXC has performed much better over the last year. three and five year annualized returns are nearly identical.