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. While some oil and gas ETFs track futures contracts or commodities prices, the ETFs below are solely focused on stocks.
- The oil and gas sector dramatically underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are MLPX, AMLP, and MLPA.
- The top holdings of these ETFs are Enbridge Inc., MPLX LP, and Enterprise Product Partners LP, respectively.
The universe of oil and gas ETFs that trade in the U.S. is comprised of about 17 ETFs, 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 Energy Select Sector SPDR ETF (XLE), has dramatically underperformed the broader market, posting a total return of -47.1% over the past 12 months compared to the S&P 500's total return of 14.0%. The best-performing oil and gas ETF, based on performance over the past year, is the Global X MLP & Energy Infrastructure ETF (MLPX). We examine the top 3 oil and gas ETFs below. All numbers in this story are as of November 4, 2020.
- Performance over 1-Year: -29.8%
- Expense Ratio: 0.45%
- Annual Dividend Yield: 7.99%
- 3-Month Average Daily Volume: 129,780
- Assets Under Management: $457.7 million
- Inception Date: August 6, 2013
- Issuer: Global X
MLPX tracks the Solactive MLP & Energy Infrastructure Index, holding a basket of multi-cap energy master limited partnerships (MLPs) and infrastructure corporations. The fund is principally focused on midstream energy infrastructure MLPs, and companies that own and operate assets used in energy logistics such as pipelines and storage facilities. Its top three holdings include Enbridge Inc. (ENB.TSE), a Canada-based energy transportation company; TC Energy Corp. (TRP:TSE), a Canada-based provider of energy infrastructure services; and Kinder Morgan Inc. (KMI), an energy infrastructure company.
- Performance over 1-Year: -36.0%
- Expense Ratio: 0.85%
- Annual Dividend Yield: 8.60%
- 3-Month Average Daily Volume: 2,603,162
- Assets Under Management: $3.2 billion
- Inception Date: August 24, 2010
- Issuer: ALPS
AMLP is focused soley on master limited partnerships, which are required to generate at least 90% of their income from activities related to either natural resources or real estate. The Internal Revenue Service (IRS) treats MLPs as a pass-through entity, meaning that their distributions are taxed at the personal level. All of the ETF's investments are in U.S. energy MLPs that get at least half of their EBITDA from assets that aren't vulnerable to swings in commodity prices. Its top three holdings include MPLX LP (MPLX), a midstream pipeline operator that transports crude oil, refined products and other hydrocarbons; Plains All American Pipeline LP (PAA), which focuses on transporting crude oil through its pipelines and terminal assets; and Magellan Midstream Partners LP (MMP), a pipeline owner and operator specializing in refined petroleum products and ammonia.
- Performance over 1-Year: -40.4%
- Expense Ratio: 0.45%
- Annual Dividend Yield: 12.93%
- 3-Month Average Daily Volume: 296,974
- Assets Under Management: $595.0 million
- Inception Date: April 18, 2012
- Issuer: Global X
MLPA is similar to AMLP in that it seeks to match its performance to that of the U.S. energy MLPs. MLPA tracks the Solactive MLP Composite Index and holds midstream MLPs that are involved in the storage and transportation of energy commodities. Its top three holdings include Enterprise Product Partners LP (EPD), an operator of natural gas and crude oil pipelines; Energy Transfer LP (ET), an energy storage and transportation company that also sells gasoline and refined crude oil products; and Magellan Midstream Partners.
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