If you're looking to invest in oil and gas companies, a sector ETF may be a low-cost way to get that exposure. The three most popular exchange-traded funds(ETFs), that track the oil andgas drilling sector are the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO), and theInvesco Dynamic Energy Exploration & Production Portfolio (PXE). Here, we take a closer look at these ETFs.
Understanding Oil & Gas ETFs
Oil and gas ETFs are one way investors can diversify their portfolio and invest in the oil and gas industry. These ETFs can hold a diversified portfolio of stocks of companies involved in various aspects of the oil and gas industry such as exploration, production, refining, and distribution.
In some cases, the performance of oil and gas ETFs are closely tied to the overall health of certain markets. For instance, the energy market can be influenced by politics or major natural events. Oil and gas ETFs aren't just representative of how certain companies are performing; they can represent broader macroeconomic trends of how the economy is going. For this reason, investors may take note and find the following three ETFs particularly interesting compared to other types of ETFs.
The SPDRS&P Oil & Gas Exploration & Production ETF
XOP was created on June 19, 2006, and has an expense ratio of 0.35%. The ETF'sone-year return was -6.8%, five-year return was 3.28%, and ten-year return was -5.02% as of November 30, 2023.The ETF has net assets of $3.4billion as of December 6, 2023. Its benchmark is the S&P Oil & Gas Exploration & Production Select Industry Index. The top holdings of the fund and their percentage of total assets as of December 6, 2023 are:
- Phillips 66 - 2.98%
- Chord Energy Corp - 2.81%
- Southwestern Energy Co. - 2.77%
- Diamondback Energy Inc. - 2.74%
- Pioneer Natural Resources Co. - 2.71%
The iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund
IEO was founded on May 1, 2006, and has a management expense ratio of 0.40%. As of November 30, 2023 , the ETFs return over the past year was -3.91%, five years was 45.74%, and 10 years was 3.63%. IEO's benchmark is the Dow Jones U.S. Select Oil Exploration & Production Index. IEO is smaller than XOP, with assets of $801 million. The top holdings and their sizes proportionate to the fundare as follows:
- ConocoPhillips - 19.46%
- EOG Resources Inc. - 10.25%
- Marathon Petroleum Corporation- 8.42%
- Pioneer Natural Resource - 7.61%
- Phillips - 5.38%
The Invesco Dynamic Energy Exploration & Production Portfolio
The smallest of the three most commonly traded ETFsinthe oil and gas drilling sector is the PXE, with assets of just $21.5million as of September 30, 2023. The fund was founded on Oct. 26, 2005, and has a net expense ratio of 0.60%. The ETF returned -2.57% over one year, 11.21% over five years, and 2.06% over ten years as of November 30, 2023.
This ETF is more volatile than a broad-based index such as the S&P 500, which has ETFs likeSPY tracking it. The benchmark for PXE is the Index Dynamic Energy Exploration & Production Intellidex Index. Its top holdings are:
- Phillips 66 - 5.62%
- Valero Energy Corp - 5.22%
- Marathon Petroleum Corp - 5.10%
- Devon Energy Corp - 5.03%
- Diamondback Energy Inc - 4.98%
What Types of Companies Are Included In Oil and Gas ETFs?
Oil and gas ETFs may be made up of a number of different industry-related companies. Each may encompass businesses engaged in oil exploration, production, refining, distribution, and related services.
How Do Geopolitical Events Impact Oil and Gas ETFs?
Political instability in oil-producing regions, trade tensions, and conflicts can disrupt the supply chain and lead to fluctuations in oil prices. Consider how tariffs or bans on trade can influence markets around the world, especially related to energy trade. For this reason, oil and gas ETFs may be particularly sensitive to legislative or geopolitical changes.
Are Oil and Gas ETF Prices Tied to Oil Prices?
Commodity prices, particularly the price of oil, are closely linked to the performance of oil and gas ETFs. These funds are sensitive to fluctuations in oil prices, as they directly affect the revenue and profitability of the companies within the energy sector. For instance, should oil prices rise, the private entities with oil as their inventory would benefit, therefore increasing the value of the oil and gas ETF.
The Bottom Line
The oil and gas industry has been under strain over the past few years, with relatively low oil prices and an increase of supply. Expectations for future growth of these ETFs must thus be tempered with an appreciation of the impact of the fluctuatingprice of oil and the resistance level of the commodity.
FAQs
List of Top Performing Oil & Gas ETFs in 2024
| Ticker | Fund | YTD Return |
|---|
| USO | United States Oil Fund | 16.67% |
| BNO | United States Brent Oil Fund | 15.71% |
| OILK | ProShares K-1 Free Crude Oil Strategy ETF | 13.30% |
| USL | United States 12 Month Oil Fund | 12.00% |
1 more rowThe three most popular exchange-traded funds (ETFs), that track the oil and gas drilling sector are the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO), and the Invesco Dynamic Energy Exploration & Production Portfolio (PXE).
Is there a 3X oil ETF? ›
Leveraged 3X Oil ETFs are funds that track futures pricing on various oil-based natural resources. These include crude oil (Brent and WTI), heating oil and gasoline.
What is the best ETF for natural gas? ›
Return comparison of all natural gas ETFs/ETCs
| ETF | 2024 in % | 2021 in % |
|---|
| BNPP RICI Enhanced Natural Gas (ER) EUR Hedge ETC | -14.01% | - |
| SG ETC Henry Hub Natural Gas Futures-Kontrakt | -29.58% | - |
| WisdomTree Natural Gas | -30.31% | +37.29% |
| WisdomTree Natural Gas - EUR Daily Hedged | -32.56% | +25.29% |
3 more rowsThe Vanguard Energy ETF (VDE) offers investors a diverse play on the oil sector. Read on to find out more about this ETF. including its top holdings, returns, and fees. The Vanguard Energy ETF invests in a wide range of oil companies, with a focus on the industry giants like ExxonMobil and Chevron.
What is the difference between VDE and XLE? ›
XLE Vs VDE: Overview
XLE and VDE are two ETFs that approach the energy sector from slightly different angles. While XLE focuses on capturing the performance of energy companies within the S&P 500 Index, VDE seeks to track a broader index encompassing the entire energy sector.
How many ETFs is enough? ›
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
What is the most profitable ETF to invest in? ›
7 Best ETFs to Buy Now
| ETF | Assets Under Management | Expense Ratio |
|---|
| Vanguard Information Technology ETF (VGT) | $70 billion | 0.10% |
| VanEck Semiconductor ETF (SMH) | $16.3 billion | 0.35% |
| Invesco S&P MidCap Momentum ETF (XMMO) | $1.6 billion | 0.34% |
| SPDR S&P Homebuilders ETF (XHB) | $1.8 billion | 0.35% |
3 more rowsApr 3, 2024
In contrast, the riskiest ETF in the Morningstar database, ProShares Ultra VIX Short-term Futures Fund (UVXY), has a three-year standard deviation of 132.9. The fund, of course, doesn't invest in stocks. It invests in volatility itself, as measured by the so-called Fear Index: The short-term CBOE VIX index.
Is there an inverse oil ETF? ›
The best (and only) inverse oil exchange-traded fund (ETF) is SCO. Oil prices have risen faster than the broader U.S. stock market over the past year. SCO provides 2× daily short exposure to crude oil prices.
Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.
What ETF is linked to oil? ›
The largest Oil ETF is the United States Oil Fund LP USO with $1.29B in assets. In the last trailing year, the best-performing Oil ETF was GUSH at 46.98%. The most recent ETF launched in the Oil space was the Texas Capital Texas Oil Index ETF OILT on 12/21/23. Investing in oil ETFs can be a complex endeavor.
What is the safest ETF to buy? ›
The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia, Realty Income, Vanguard S&P 500 ETF, Vanguard Specialized Funds-Vanguard Real Estate ETF, and Walt Disney.
What is Vanguard's best performing ETF? ›
10 Best-Performing Vanguard ETFs
| Ticker | Company | Performance (Year) |
|---|
| VGT | Vanguard Information Technology ETF | 30.75% |
| VFMO | Vanguard U.S. Momentum Factor ETF | 27.30% |
| VOOG | Vanguard S&P 500 Growth ETF | 26.64% |
| MGC | Vanguard Mega Cap 300 Index ETF | 25.51% |
6 more rows6 days ago
Includes stocks of companies involved in the exploration and production of energy products such as oil, natural gas, and coal.
Is VDE stock a good buy? ›
VDE has a conensus rating of Moderate Buy which is based on 90 buy ratings, 23 hold ratings and 3 sell ratings. What is VDE's price target? The average price target for VDE is $148.92. This is based on 116 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
What's the best way to invest in oil? ›
Different ways to invest in oil
Avenues include buying stocks of oil and gas companies, such as producers, refiners and master limited partnerships (MLPs). Mutual funds and exchange traded funds (ETFs) can make this process easier by wrapping multiple stocks into one pooled investment.
Is XLE a good ETF to buy now? ›
Energy Select Sector SPDR ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLE is a great option for investors seeking exposure to the Energy ETFs segment of the market.
What is the difference between XLE and IXC? ›
While both ETFs operate within the same sector, their investment approaches and underlying holdings differ significantly. XLE primarily tracks energy companies within the S&P 500 Index, while IXC provides broader international exposure to the energy sector, including companies outside the United States.
