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. Also, some of these ETFs may track futures contracts or pursue other energy strategies. There are currently 21 different oil and gas ETFs, excluding leveraged, inverse funds, funds with under $50 million in assets under management, and funds with and average trading volume of under 10,000 a day.
The early 2020 oil price war and the COVID-19 pandemic have driven oil prices to record lows as of late April, 2020. As a result, oil markets have become extremely volatile, and investing in the oil and gas sector has become substantially more risky than usual. Prices and data in this article were accurate at the time of writing, but likely have changed significantly as a result of the aforementioned market volatility.
The best oil and gas ETF for Q2 2020 by one-year performance is the Global X MLP & Energy Infrastructure ETF (MLPX). Below, we'll look at the top 3 oil and gas ETFs as of April 21, 2020.
- Performance over 1 year: -41.0%
- Expense Ratio: 0.45%
- Annual Dividend Yield: 10.10%
- 3-Month Average Daily Volume: 1,576,144
- Assets Under Management: $506.0 million
- Inception Date: August 6, 2013
- Issuer: Global X
MLPX follows the Solactive MLP & Energy Infrastructure Index, holding a basket of multi-cap energy master limited partnerships (MLPs). Because of the kinds of businesses that are structured as MLPs, the fund has a much heavier focus on midstream oil and gas companies. The fund's top holdings are TC Energy Corp. (TRP), an oil and gas pipeline company, Enbridge Inc. (ENB), an oil and gas pipeline company; and Williams Companies (WMB), an integrated energy firm.
- Performance over 1 year: -44.8%
- Expense Ratio: 0.46%
- Annual Dividend Yield: 11.88%
- 3-Month Average Daily Volume: 950,047
- Assets Under Management: $690.8 million
- Inception Date: November 16, 2001
- Issuer: iShares
IXC is an ETF that holds large-cap energy stocks from around the world. Unlike MLPX, it's not focused on a particular area of the industry. Its largest holdings, Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), and Total SA (TOT), are all large integrated oil and gas companies.
- Performance over 1 year: -45.90%
- Expense Ratio: 0.13%
- Annual Dividend Yield: 15.57%
- 3-Month Average Daily Volume: 35,639,676
- Assets Under Management: $8,331.3 million
- Inception Date: Dec 16, 1998
- Issuer: State Street SPDR
XLE is the oldest, least expensive, and the largest of these three ETFs by a wide margin. While IXC holds mainly global stocks, XLE owns purely U.S. companies, with a heavy weighting toward large-cap firms. Its largest holdings are Chevron, Exxon Mobil, and ConocoPhillips (COP), which are large integrated oil and gas companies.