Oil and gas exchange traded funds (ETFs) offer investors more direct and easier access to the often volatile energy market than many other alternatives. Although there is potential for significant returns by investing in oil and gas sectorthe risks can be high. Oil futures, for example, tend to be volatile and often require significant initial investment, which rules out many investors. In contrast, oil and gas ETFs offer access to a basket of energy stocks and diversify risk.
- The oil and gas sector has significantly outperformed the broader market over the past year, driven by Russia’s invasion of Ukraine, inflation and other forces.
- The oil and gas exchange-traded funds (ETFs) with the best annual total returns are PXE, FCG and IEO.
- The largest holder of each of these ETFs is ConocoPhillips for the first and third funds and DCP Midstream LP for the second fund.
There are 28 U.S.-traded oil and gas ETFs, excluding inverse and leverage effect ETFs as well as funds with less than $50 million assets under management (AUM). The oil and gas sector, as measured by the S&P 500 Energy Index, has dramatically outperformed the broader market, posting a total return of 74.4% over the past 12 months, compared to the S&P 500’s total return of -11.0% through September. 1, 2022.
Gas and oil prices have also risen sharply over the past year. Oil prices, as measured by the Bloomberg Composite Crude Oil Subindex, rose 52.1%. Natural gas prices, as measured by the Bloomberg Natural Gas Subindex, rose 94.2%. This data is as of September 1, 2022. While these indices are not benchmarks for oil and gas stocks, they help provide context as to why these stocks have performed well over the past year.
The best-performing oil and gas ETF based on past year performance is the Invesco Dynamic Energy Exploration & Production ETF (PXE).
Below, we explore three of the best oil and gas ETFs. The numbers below are as of September 1, 2022. In order to focus on the Funds’ investment strategy, the best holdings listed for each ETF exclude cash holdings and holdings purchased with the proceeds of securities lending, except in unusual cases such as an exceptionally large portion of cash.
- Performance in one year: 91.5%
- Expense ratio: 0.63%
- Annual dividend yield: 1.69%
- Three-month average daily volume: 318,514
- Assets under management: $294.6 million
- Start date: October 26, 2005
- Issuer: Invesco
PXE seeks to track the Dynamic Energy Exploration & Production Intellidex index, which is comprised of 30 U.S. companies involved in the exploration and production of natural resources used in energy production. Companies within the index are selected based on a variety of investment return criteria, including price and earnings dynamics, quality, management performance and value. The ETF typically invests at least 90% of its assets in the securities that make up the index and provides exposure to oil and gas exploration, production and production companies. It includes oil refineries, companies that gather and process natural gas, and those that produce liquid natural gas (NGL). The fund follows a mixed strategy of investing in a combination of growth and value shares different market capitalization.
- Performance in one year: 88.9%
- Expense ratio: 0.60%
- Annual dividend yield: 1.58%
- Three-month average daily volume: 1,281,839
- Assets under management: $958.4 million
- Start date: May 8, 2007
- Issuer: First Trust
FCG aims to track the ISE-Revere Natural Gas Index, which is comprised of US companies that generate a substantial portion of their revenue from natural gas exploration and production. The securities in the index must also meet the market capitalization, liquidityand mass concentration requirements. The ETF provides exposure to natural gas exploration and production companies. It follows a blended strategy of investing in a mix of value and growth stocks across the spectrum of market capitalization. The fund can act as leverage on natural gas, providing investors with significant returns when commodity prices rise. But the ETF is also likely to experience significant events volatility.
FCG’s top three holdings are DCP Midstream LP (DCP), a medium current a company focused on energy logistics, gathering and processing as well as NGL production; Western Midstream Partners LP (WES), which collects, processes and transports natural gas and oil; and Occidental Petroleum Corp. (OXY), a global energy exploration and production company.
- Performance in one year: 85.0%
- Expense ratio: 0.39%
- Annual dividend yield: 1.96%
- Three-month average daily volume: 301,025
- Assets under management: $1,001.2 million
- Start date: May 1, 2006
- Issuer: BlackRock Financial Management
The IEO tracks the Dow Jones US Select Oil Exploration & Production Index, which is comprised of US stocks in the oil and gas exploration and production sector. The market-cap-weighted ETF provides exposure to oil and gas exploration, production and distribution companies. Companies engaged in exploration and production have the largest exposure, followed by companies engaged in: marketing and transportation of oil and gas refining; and oil and gas storage and transportation. The fund follows a mixed strategy, investing in a mix of growth and value stocks of various market capitalizations.
The three largest IEO holdings are ConocoPhillips, EOG Resources Inc. (EOG), an energy exploration and development company focused on US reserves; and Pioneer Natural Resources.
The comments, opinions and analysis expressed herein are for informational purposes only and should not be construed as individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information contained herein to be reliable, we do not guarantee its accuracy or completeness. The opinions and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analysis contained in our content are provided as of the date of publication and are subject to change without notice. The material is not intended to be a complete analysis of all material facts relating to any country, region, market, industry, investment or strategy.