These energy ETFs benefit from surging oil prices.
On March 8, U.S. President Joe Biden announced a ban on Russian fossil fuel imports as part of the U.S. response to Russia’s invasion of Ukraine. West Texas Intermediate crude oil prices hit 13-year highs of more than $125 per barrel in March, boosting the huge gains in many energy sector stocks so far in 2022. Bank of America analyst Jared Woodard recently upgraded his outlook for all the energy exchange-traded funds he covers to “favorable” and said inflation, dividend yields and geopolitical uncertainty are a winning recipe for the energy sector. Here are seven of the best energy ETFs to buy, per Bank of America.
Energy Select Sector SPDR Fund (ticker: XLE)
The Energy Select Sector SPDR Fund tracks an index of S&P 500 energy sector stocks, and it’s Woodard’s top diversified energy sector ETF pick. Woodard says the XLE fund has the most bullish price momentum and the best three-year Sortino ratio of all the energy ETFs he covers. Sortino ratios measure a fund’s risk-adjusted performance. The fund has stakes in 21 energy sector stocks, including top holdings Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and EOG Resources Inc. (EOG). The XLE fund pays a 3.4% dividend, more than double the S&P 500 average, and has a 0.1% expense ratio. Bank of America has a “more attractive” rating for the XLE ETF.
iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
The iShares U.S. Oil & Gas Exploration & Production ETF is Woodard’s top pick among U.S. oil exploration and production funds. Roughly 68% of the IEO fund’s stock holdings have a “buy” rating from Bank of America analysts. Woodard says oil exploration and production companies have shifted focus to capital returns to shareholders and are more aware of the long-term consequences of unnecessary growth than they were in the past. The IEO fund contains 54 equities, including top holdings ConocoPhillips (COP), EOG Resources and Pioneer Natural Resources Co. (PXD). Bank of America has a “more attractive” rating for the IEO ETF, which has a 0.42% expense ratio.
Tortoise North American Pipeline Fund (TPYP)
The Tortoise North American Pipeline Fund invests in North American pipeline companies and is Woodard’s top master limited partnership ETF pick. MLPs are tax-advantaged business entities that typically pay investors high distribution rates similar to dividend yields. Bank of America is bullish on MLPs with strong earnings and free cash flow, and increased drilling in the Permian basin could be another bullish catalyst. The TPYP fund holds 53 MLPs and pays a 4.3% distribution yield. Top holdings include Williams Cos. Inc. (WMB), TC Energy Corp. (TRP) and Enbridge Inc. (ENB). Bank of America has a “more attractive” rating for the IEO ETF, which has a 0.4% expense ratio.
Global X MLP & Energy Infrastructure ETF (MLPX)
The Global X MLP & Energy Infrastructure ETF is another MLP ETF that tracks the Stuttgart Solactive MLP & Energy Infrastructure Index. The MLPX fund has higher daily trading volume than the TPYP fund, creating more liquidity for investors. However, the MLPX fund is much less diversified with only 27 holdings and it pays a lower distribution yield of 5.1%. Top holdings include Williams, TC Energy and Enbridge. The MLPX fund has also slightly underperformed the TPYP in total return over the past five years. Still, Bank of America has a “more attractive” rating for the MLPX fund, which has a 0.45% expense ratio.
VanEck Oil Services ETF (OIH)
The VanEck Oil Services ETF tracks the largest 25 U.S.-listed oil services companies, and it’s Woodard’s top pick among oil services ETFs. Bank of America estimates that exploration and production capital expenditures could rise nearly 50% in 2022 thanks to sky-high oil prices, and that spending growth will be a major tail wind for oilfield services stocks. The OIH fund is by far the most liquid oil services ETF. Top holdings include Schlumberger Ltd. (SLB), Halliburton Co. (HAL) and Baker Hughes Co. (BKR). Bank of America has a “more attractive” rating for the OIH ETF, which has a 0.35% expense ratio.
Invesco Dynamic Energy Exploration & Production ETF (PXE)
The Invesco Dynamic Energy Exploration & Production ETF is an exploration and production fund that is part of PowerShares’ Intellidex series designed to outperform market-cap-weighted benchmarks. Unfortunately, despite having a higher expense ratio than the IEO ETF, the PXE fund’s total return has lagged behind the IEO fund’s over the past five years, at 7.2% versus IEO’s 8% total return over the same period. The PXE fund also has relatively low liquidity. The fund contains 33 holdings, including top holdings Occidental Petroleum Corp. (OXY), ConocoPhillips and Devon Energy Corp. (DVN). Bank of America has an “attractive” rating for the PXE ETF, which has a 0.63% expense ratio.
iShares U.S. Oil Equipment & Services ETF (IEZ)
The iShares U.S. Oil Equipment & Services ETF is a popular oil services fund. The IEZ fund has a slightly higher expense ratio than the OIH fund at 0.41% and has far less liquidity. However, 69% of the IEZ fund’s 26 stocks have Bank of America “buy” ratings, compared with 66% of OIH holdings. Woodard says the IEZ fund has strong fundamental and technical scores. The IEZ fund’s top holdings include Baker Hughes, Schlumberger and Helmerich & Payne Inc. (HP). Bank of America has an “attractive” rating for the IEZ ETF.
7 of the best energy ETFs to buy:
— Energy Select Sector SPDR Fund (XLE)
— iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
— Tortoise North American Pipeline Fund (TPYP)
— Global X MLP & Energy Infrastructure ETF (MLPX)
— VanEck Oil Services ETF (OIH)
— Invesco Dynamic Energy Exploration & Production ETF (PXE)
— iShares U.S. Oil Equipment & Services ETF (IEZ)
More from U.S. News
Update 03/10/22: This story was published at an earlier date and has been updated with new information.