NEWS ALERT March 7, 2022, 11:09 a.m. EST: Brent crude futures jumped to $139 a barrel Sunday night before retreating to around $120. West Texas Intermediate futures hit $130 and pulled back to $118. Sunday night’s peaks represent the highest oil prices since 2008.
Oil and gas exchange-traded funds (ETFs) offer investors more direct and easier access to the often-volatile energy market than many other alternatives. While there is the potential for significant returns by investing in the oil and gas sector, the risks can be high. Oil futures, for example, tend to be volatile and often require a significant initial investment, which excludes many investors. By contrast, oil and gas ETFs offer access to a basket of energy equities, diversifying risk.
While some oil and gas ETFs track futures contracts or commodities prices, the ETFs below are focused solely on stocks.
- The oil and gas sector outperformed the broader market over the past year, fueled by soaring oil and gas prices.
- The oil and gas exchange-traded funds (ETFs) with the best one-year trailing total returns are PXE, FCG, and IEO.
- The top holding of each of these ETFs is Occidental Petroleum Inc., Western Midstream Partners LP, and ConocoPhillips, respectively.
There are 32 oil and gas stock ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The oil and gas sector, as measured by the S&P 500 Energy sector index, has outperformed the broader market, posting a total return of 62.0% over the past 12 months compared with the S&P 500’s total return of 16.8%, as of Feb. 10, 2022.
Oil prices, and to a lesser extent gas prices, have also risen sharply over the past year. Prices of crude oil, as gauged by the Bloomberg Composite Crude Oil Subindex, have risen 62.4%. Natural gas prices, as measured by the Bloomberg Natural Gas Subindex, have risen 24.5%. These figures are as of Feb. 10, 2022. While these indexes are not benchmarks for stocks of oil and gas companies, they do help to provide context for why these stocks have performed well over the past year.
The best-performing oil and gas ETF, based on performance over the past year, is the Invesco Dynamic Energy Exploration & Production ETF (PXE). We examine the top three oil and gas ETFs below. The figures below are as of Feb. 10, 2022.
- Performance Over One-Year: 83.5%
- Expense Ratio: 0.63%
- Annual Dividend Yield: 1.69%
- Three-Month Average Daily Volume: 151,072
- Assets Under Management: $184.4 million
- Inception Date: Oct. 26, 2005
- Issuer: Invesco
PXE seeks to track the Dynamic Energy Exploration & Production Intellidex index, which is composed of 30 U.S. companies involved in the exploration and production of natural resources used in energy production. The companies within the index are selected based on various investment merit criteria, including price and earnings momentum, quality, management action, and value. The ETF normally invests at least 90% of its assets in the securities comprising the index and provides exposure to companies engaged in the exploration, extraction, and production of crude oil and natural gas. It includes petroleum refineries, companies that gather and process natural gas, and those that manufacture natural gas liquid. The fund follows a blended strategy of investing in a mix of growth and value stocks of various market capitalizations. PXE’s top three holdings are Occidental Petroleum Corp. (OXY), an oil and gas exploration and production company; EOG Resources Inc. (EOG), an oil and gas exploration and production company; and Marathon Petroleum Corp. (MPC), a petroleum refiner and transportation company.
- Performance Over One-Year: 77.8%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.58%
- Three-Month Average Daily Volume: 1,423,747
- Assets Under Management: $523.5 million
- Inception Date: May 8, 2007
- Issuer: First Trust
FCG aims to track the ISE-Revere Natural Gas Index, which is composed of U.S. companies that generate a substantial portion of their revenues from the exploration and production of natural gas. Securities in the index must also satisfy market cap, liquidity, and weighting concentration requirements. The ETF provides exposure to companies involved in natural gas exploration and production. It follows a blended strategy of investing in a mix of value and growth stocks across the market cap spectrum. The fund can act as a leveraged play on natural gas, providing investors significant returns when prices of the commodity rise. But the ETF also is likely to experience significant volatility. FCG’s top three holdings are Western Midstream Partners LP (WES), a company engaged in the gathering, processing, and transportation of natural gas; Occidental Petroleum; and ConocoPhillips (COP), a multinational oil and gas company.
- Performance Over One-Year: 75.0%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 1.96%
- Three-Month Average Daily Volume: 176,616
- Assets Under Management: $598.7 million
- Inception Date: May 1, 2006
- Issuer: BlackRock Financial Management
IEO tracks the Dow Jones U.S. Select Oil Exploration & Production Index, which is comprised of U.S. equities within the oil and gas exploration and production sector. The market-cap-weighted ETF provides exposure to companies engaged in the exploration, production, and distribution of oil and gas. Exploration and production companies receive the largest exposure, followed by companies involved in oil and gas refining, marketing, and transportation. The fund follows a blended strategy, investing in a mix of growth and value stocks of various market caps. Its top three holdings are ConocoPhillips; EOG Resources; and Pioneer Natural Resources Co. (PXD), an oil and gas exploration and production company.
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