Like many exchange-traded funds (ETFs), crude oil ETFs are an investment option for those who want exposure to the oil sector but do not want the complications and risks that come with oil futures. Crude oil ETFs can offer exposure to different facets of the oil industry while being professionally managed.
The Vanguard Energy ETF (VDE) is an oil fund composed of a variety of oil-related stocks and offers investors a diverse play on the oil sector. Read on to find out more about this ETF including its top holdings, returns, and fees.
In the Spring of 2020, oil prices collapsed amid the COVID-19 pandemic and economic slowdown. OPEC and its allies agreed to historic production cuts to stabilize prices, but they dropped to 20-year lows.
Vanguard Energy ETF Basics
The Vanguard Energy ETF was launched on Sept. 23, 2004. It has $3.7 billion in assets under management (AUM) as of Dec. 31, 2018.
The fund is passively managed and tracks the MSCI US Investable Market Energy 25/50 Index, a gauge composed of a variety of stocks of various-sized companies in the energy sector. These include companies involved in oil, natural gas, and coal exploration, production and distribution.
As of Jan. 29, 2019, the fund was trading at $84.73 per share. The 52-week high for one share was $108.96, while the 52-week low was $84.22.
The fund’s 141 holdings are weighted by market capitalization, meaning larger companies have a bigger position in the fund. However, the fund also invests in smaller companies on a reduced scale. The majority of the companies it invests in are U.S. companies. Foreign holdings total 0.7%.
Top 10 Holdings of Vanguard Energy ETF
The fund's top 10 holdings make up 67.5% of its total net assets and include Exxon Mobil, Chevron, ConocoPhillips, EOG Resources, Schlumberger, Occidental Petroleum, Marathon Petroleum, Phillips 66, Valero Energy and Kinder Morgan. Although some investors do not like investing almost exclusively in industry behemoths, this creates some stability given the oil industry's high risk and high-cost nature.
The fund's top holdings are involved in a variety of oil-related businesses including the construction or provision of oil rigs, drilling equipment, energy-related equipment and services, and the exploration, production, marketing, refining and transportation of oil and gas products. Only 42.8% of the fund's total holdings are focused on the integrated oil and gas sector, which involves companies whose business includes natural gas and coal energy products.
Vanguard Energy ETF Returns
The fund held up fairly well when oil prices saw increased volatility at the beginning of 2016. The fund declined just over 8% in the first weeks of 2016, compared to the United States Oil Fund (USO), a popular oil futures ETF that declined over 24% in the same period.
As of Dec. 31, 2018, the Vanguard Energy ETF's average one-year annual return was -20.01% and its average five-year annual return was 3.50%. The average annual return since inception was 5.12%.
Vanguard Energy ETF Fees
ETFs charge investors fees to cover the fund's management and operation. The Vanguard Energy ETF has relatively low management fees with a modest 0.10% expense ratio, which is composed of a 0.07% management fee and 0.03% in other expenses. The fund also rewards its investors with quarterly distributions.
The Bottom Line
ETFs have been around for about 25 years and have become a popular alternative investment category. Many ETFs come with low fees because they follow a less expensive indexing strategy. They offer investors exposure to a wide range of equities and securities, without the risks associated with the physical commodity on which they may focus.
The Vanguard Energy ETF, which tracks the MSCI US Investable Market Energy 25/50 Index, cuts back the risk to traditional oil futures. It gives investors access to some of the world's largest energy companies that operate in a variety of business segments.