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 FCG, XOP, and IEO.
- The top holdings of these ETFs are Diamondback Energy Inc., Renewable Energy Group Inc., and ConocoPhillips, respectively.
The universe of oil and gas ETFs that trade in the U.S. is comprised of about 12 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 S&P 500 Energy Sector Index, has dramatically underperformed the broader market, posting a total return of -12.3% over the past 12 months compared to the S&P 500's total return of 18.9%. The best-performing oil and gas ETF, based on performance over the past year, is the First Trust Natural Gas ETF (FCG). We examine the top 3 oil and gas ETFs below. Benchmark performance figures above are as of February 10, while all other data are as of February 15.
- Performance over 1-Year: 30.2%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 2.99%
- 3-Month Average Daily Volume: 961,124
- Assets Under Management: $129.9 million
- Inception Date: May 11, 2007
- Issuer: First Trust
FCG is a multi-cap, blended fund targeting the ISE-Revere Natural Gas Index. The index is equal-weighted and holds exchange-listed companies that derive a significant portion of revenue from the exploration and production of natural gas. FCG holds a basket of about 34 companies, with the top 10 holdings accounting for roughly 45% of invested assets. The top holdings of the fund include Diamondback Energy Inc. (FANG); Occidental Petroleum Corp. (OXY); and Marathon Oil Corp. (MRO), all of which are energy companies engaged in the exploration and production of natural gas and related products.
- Performance over 1-Year: 2.8%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.48%
- 3-Month Average Daily Volume: 8,343,997
- Assets Under Management: $2.7 billion
- Inception Date: June 19, 2006
- Issuer: State Street SPDR
XOP is a multi-cap, blended ETF that targets the S&P Oil & Gas Exploration & Production Select Industry Index. The index seeks to provide exposure to companies involved in the Integrated Oil & Gas, Oil & Gas Exploration & Production, and Oil & Gas Refining & Marketing subsectors. Because of its equal weighting approach, XOP is more balanced than some of the other oil and gas ETFs. The top holdings of this fund include Renewable Energy Group Inc. (REGI), a producer of biofuels and renewable energies; Diamondback Energy; and Marathon Oil.
- Performance over 1-Year: -5.8%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 2.65%
- 3-Month Average Daily Volume: 140,959
- Assets Under Management: $188.9 million
- Inception Date: May 5, 2006
- Issuer: iShares
IEO is a multi-cap, blended fund that tracks the Dow Jones U.S. Select Oil Exploration & Production Index. This index is comprised of U.S. equities in the oil and gas exploration and production industries. The top 10 holdings account for nearly three quarters of invested assets, and the top 5 holdings represent more than 50%. The top three holdings include ConocoPhillips (COP); EOG Resources Inc. (EOG); and Phillips 66 (PSX). The first two companies are primarily oil and/or gas exploration and production companies, while the third is a downstream energy company involved in oil refining, marketing, and transportation.
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