It’s tempting to get into the oil market now that the Trump administration has promised to make domestic energy production a priority. The Brent Spot Price reflects this enthusiasm – it pushed above $69 at the end of February.
However, getting into oil isn't exactly easy. The most direct route is with oil futures, which are extremely volatile and usually require an initial investment that excludes all but the most serious investors.
As an alternative, exchange-traded funds (ETFs) are a great way to get a piece of the oil market. You can choose funds that track the performance of oil prices using futures contracts or funds tied to a basket of oil company equities. You can also take a short position on oil prices if you project a bearish trend. All offer exposure to the oil market, but each has a different level of risk – and a different place in a diversified portfolio.
In 2017, a variety of strategies did well. The three ETFs below were top performers and are expected to continue gaining in 2018. These three ETFs were chosen based on a combination of performance, trading volume, exposure and assets under management. All figures are as of Feb 22, 2018.
- Issuer: VanEck
- 1-year return: 36.57%
- Price: $29.43
- Average volume: 8,429
- Assets under management: $24.82 million
- Net expense ratio: 0.59%
The VanEck Vectors Oil Refiners ETF returned 36.57% for the year-long period through Feb 22, 2018. The fund uses an index strategy to replicate the returns of the MVIS Global Oil Refiners Index. The index is a rules-based, modified capitalization weighted index. It tracks the performance of companies involved in crude oil refining with the production of gasoline, diesel, jet fuel, and fuel oil.
- Issuer: U.S. Commodity Funds
- 1-year return: 15.09%
- Price: $18.21
- Average volume: 160,155
- Assets under management: $94.01 million
- Total expense ratio: 0.90%
BNO seeks to track the daily price movements of Brent crude oil. The fund’s benchmark is the BNO Benchmark Oil Futures Contract, which includes near month Brent crude oil futures contracts traded on the ICE Futures Exchange. To achieve the fund’s strategy it primarily invests in Brent crude oil futures contracts. Other investments in the portfolio include other oil-related futures contracts, forwards, swap contracts, cash, cash equivalents, and U.S. government obligations. For the one year period through Feb 22, 2018, BNO had a return of 15.09%.
- Issuer: Invesco PowerShares
- 1-year Return: 13.87%
- Price: $10.71
- Average volume: 493,566
- Assets under management: $433.79 million
- Total expense ratio: 0.75%
The PowerShares DB Oil Fund is an index fund that seeks to track the DBIQ Optimum Yield Excess Return Crude Oil Index. The index is based on the value of light sweet crude oil (WTI) futures contracts. DBO invests 100% of its net assets in WTI crude oil futures. Its collateral includes U.S. Treasury Bills, the Premier U.S. Government Money Portfolio and the PowerShares Treasury Collateral Portfolio ETF. For the one year period through Feb 22, 2018, DBO had a return of 13.87%.