Power your portfolio higher with these top energy ETFs.
With record oil and gas prices set earlier this year, the stock market in 2022 has in many ways been defined by the energy sector. Some of the biggest names in Big Oil are a few of the rare companies in the S&P 500 that have logged significant gains year to date while the rest of Wall Street has melted down. Where energy prices are headed in the coming months is anyone’s guess, however, particularly as the European Union holds emergency legislative sessions to limit skyrocketing gas costs in advance of the colder months driving up demand in the region. If you’re bullish on the energy sector and interested in playing the possibility of continued upside, then one of these seven energy exchange-traded funds, or ETFs, could be worth a look.
Energy Select Sector SPDR Fund (ticker: XLE)
With roughly $37 billion under management, average volume north of 28 million shares per day, and a history of trading that dates back to 1998, XLE is perhaps the most established energy ETF on Wall Street. Unfortunately, it’s far from the most diversified energy fund out there. There are only 21 total holdings at present, and since the fund is weighted by market value the biggest stocks on that already short list carry outsized influence. For instance, Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) alone represent more than 40% of the entire portfolio at present. Depending on your investment goals, this Big Oil bias may not be a turnoff — particularly as XLE is up more than 45% so far this year — but it’s certainly worth pointing out.
iShares Global Energy ETF (IXC)
If you want to get away from a focus on a small list of U.S. energy behemoths via the prior fund, then this top iShares energy ETF provides a decent alternative. It boasts more than twice as many holdings, with about 50 stocks at present from around the globe. That means it includes some multinational Big Oil companies that were excluded from the prior fund simply because they aren’t headquartered in the U.S., such as the U.K.’s BP PLC (BP) and France’s TotalEnergies SE (TTE). If you want to play the biggest names in the oil patch, then IXC and its global approach could be worth a look. The diversification has held this fund back a bit, but at 35% returns year to date it’s still doing quite well.
iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
IEO is focused on oil exploration companies and excludes a lot of the “downstream” companies in the energy supply chain. And thanks to soaring commodity prices in 2022, it is one of the top-performing ETFs of any variety on Wall Street with returns of almost 55% since Jan. 1. Top holdings include ConocoPhillips (COP) but also lesser-known production firms like EOG Resources Inc. (EOG) and Pioneer Natural Resources Co. (PXD). If you really are bullish on energy right now, these stocks could be your best bet as prices remain elevated and margins remain big. But just keep in mind that the run-up we’ve seen lately could be offset by declines if oil prices move sharply in the other direction.
United States Natural Gas Fund LP (UNG)
Of course, if you want to tap into runaway energy prices then it may be interesting to consider an investment directly in the commodities themselves instead of the for-profit corporations that take fossil fuels out of the ground. That’s what UNG provides, as it is a roughly $500 million exchange-traded fund that invests almost exclusively in natural gas futures. Specifically, it is tied to natural gas contracts linked to energy delivered at the Henry Hub, Louisiana, terminal and traded on the New York Mercantile Exchange, or Nymex. Futures come with their own unique volatility profile and risks that are separate from stocks, but with UNG up an amazing 130% so far in 2022 those risks may be worth the reward for some traders.
Alerian MLP ETF (AMLP)
This ETF from Alerian is among the most popular ways for investors to get a stake in master limited partnerships, or MLPs. These unique energy infrastructure stocks play a vital role in storage and transportation of energy rather than simply drilling or refining, which means a bit less profit potential when oil and gas are expensive but also more stability and reliability in the trade-off. That consistency in operations along with the “partnership” part of MLP structures leads to a mandate for big-time dividends. AMLP may “only” be up about 23% this year, but it delivers a yield of about 7.4% on top of that.
iShares Global Clean Energy ETF (ICLN)
If you want to explore the sector outside of the prior energy ETFs focused on fossil fuels, ICLN is a clean energy option that looks to the future in the age of climate change. The portfolio includes popular solar plays like Enphase Energy Inc. (ENPH), utilities like Dutch giant Orsted (DNNGY) that derive a large part of their electricity from renewable sources, and wind turbine companies such as Vestas Wind Systems (VWS). With nearly $6 billion in assets, this is a go-to investment for energy investors looking to a future beyond oil and gas.
Invesco Solar ETF (TAN)
A popular solar ETF with a memorable ticker symbol, TAN is not just one of the most widely held ETFs in the alternative energy space but it’s also among the most popular energy funds of any flavor. This Invesco fund boasts almost $3 billion in assets and trades more than a million shares daily despite its rather focused niche. It includes just over 50 of the biggest names in the industry, including First Solar Inc. (FSLR), SolarEdge Technologies Inc. (SEDG) and Sunrun Inc. (RUN). Though solar is an admittedly narrow segment of the energy sector, it is clearly one that many investors are interested in — and this is the leading fund to invest tactically in the solar space via a single position.
7 best energy ETFs to buy now:
— Energy Select Sector SPDR Fund (XLE)
— iShares Global Energy ETF (IXC)
— iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
— United States Natural Gas Fund LP (UNG)
— Alerian MLP ETF (AMLP)
— iShares Global Clean Energy ETF (ICLN)
— Invesco Solar ETF (TAN)
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Update 09/15/22: This story was previously published and has been updated with new information.