If you want to place a bet on the rising oil and gas prices, but don’t know which stocks to pick, put your money into one of the several hot energy ETFs that can bring instant diversity to your holdings while adding upside from this rising sector. So what exactly is an energy ETF? An energy ETF is an exchange-traded fund that invests in stocks in the energy sector, which might include oil and natural gas, alternative energy companies such as wind farms or solar panel producers, and utility companies. Currently, the Energy Select Sector SPDR Fund (XLE) is the largest energy ETF with around $25 billion in assets under management. You can find a myriad of sub-sector energy ETFs to suit your investing style. For example, if you’re interested in sustainable investing there are renewable energy and clean energy ETFs that will give you exposure to this segment. There are 44 energy ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management. If you’re simply interested in the highest returns possible from this group then you can give one of the following funds a try.
Invesco Dynamic Energy Exploration and Production (PXE)
One Year Returns: 91%
Expense Ratio: 0.50
Total Assets: $171.76 M
The Invesco Dynamic Energy ETF yielded an astounding 91% return for the last year. The Index is composed of securities of 30 U.S. companies involved in the exploration and production of natural resources used to produce energy. These companies are engaged principally in exploration, extraction and production of crude oil and natural gas from land-based or offshore wells. These companies include petroleum refineries that process the crude oil into finished products, such as gasoline and automotive lubricants, and companies involved in gathering and processing natural gas, and manufacturing natural gas liquid.
One Year Returns: 82%
Expense Ratio: 0.40
Total Assets: $522.31 M
The natural gas sector of the energy industry was on fire last year and First Trust Natural Gas has lead the way. The index is designed to track the performance of mid and large capitalization companies that derive a substantial portion of their revenues from midstream activities and/or the exploration and production of natural gas. Currently the top three holdings of the fund are Western Midstream Partners LP, ConocoPhillips, and Occidental Petroleum. The ETF has a beta of 2.27 and standard deviation of 52.01% for the trailing three-year period, making it a high risk choice in the space.
iShares US Oil & Gas Explor. & Prod (IEO)
One Year Returns: 73%
Expense Ratio: 0.42
Total Assets: $653 M
Sticking with the theme of oil and gas exploration and production, this investment seeks to track the investment results of the Dow Jones U.S. Select Oil Exploration & Production Index composed of U.S. equities in the oil and gas exploration and production sector. Like many energy ETFs, IEO faces some concentration issues, as a handful of stocks account for a significant chunk of this portfolio. ConocoPhillips and EOG Resources account for almost a third of the fund’s investment currently. With high return generally comes high risk. The ETF has a beta of 1.85 and standard deviation of 47.11% for the trailing three-year period, making it a high risk choice in the space.
Invesco DWA Energy Momentum (PXI)
One Year Returns: 65%
Expense Ratio: 0.60
Total Assets: $214.60 M
This is an interesting fund as it uses momentum and technical analysis in an attempt to time the energy markets. It did very well the last year, yielding returns of approximately 65%. The Index is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 securities from the NASDAQ US Benchmark Index. Relative strength is the measurement of a security’s performance in a given universe over time as compared to the performance of all other securities in that universe. PXI has 97% of its assets currently invested in the energy sector with Ovintiv Inc. and Cheniere Energy Inc. being the two largest. More diversified than IEO, the top 10 holdings account for about 34.71% of total assets under management.
First Trust Nasdaq Oil & Gas (FTXN)
One Year Returns: 61%
Expense Ratio: 0.60
Total Assets: $1,223 M
First Trust has made a second appearance on our list of five with its FTXN oil and gas fund. The investment objective of the Fund is to seek investment results that correspond generally to an index called the Nasdaq US Smart Oil & Gas Index. The Fund seeks to replicate the holdings and weightings of the Nasdaq US Smart Oil & Gas Index so as to generate performance results 95% correlated to that of the Nasdaq US Smart Oil & Gas Index. This fund is interesting because it is what is known as a smart beta fund. If you’re the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice. This fund class is known for tracking non-cap weighted strategies. Its top 10 holdings account for approximately 48.37% of FTXN’s total assets under management.
