Best Energy ETFs for Q4 2022

PXE, IEO, and FCG are the best energy ETFs for Q4 2022

Energy exchange-traded funds (ETFs) invest primarily in stocks of natural gas, oil, and alternative energy companies. This doesn't perfectly match up with the companies included in the energy sector in the S&P 500, which includes oil and gas companies. Alternative energy companies are typically categorized as tech sector stocks, or occasionally other sectors. The securities within an energy ETF’s portfolio include major companies such as Enbridge Inc. (ENB), as well as smaller, fast-growing companies such as SunPower Corp. (SPWR).

Because energy ETFs cover a wide variety of businesses, regions, and risk profiles, they offer something for nearly every investor. The ETF approach provides diversification across the industry, allowing investors to gain exposure without taking on the level of risk inherent in investing in a specific energy company. Many energy companies tied to electric vehicles, solar energy, and wind energy may see rising sales and earnings if the Biden administration succeeds in implementing its climate and energy initiatives.

While many of these companies trade as energy stocks, they depend on oil and gas prices. These are measured by the return for the Bloomberg Composite Crude Oil Subindex, which is 53.2% for the past year as of Sept. 9, 2022; and by the return for the Bloomberg Natural Gas Subindex, which is 54.0% during the same period. While these numbers are not main benchmarks, they provide important context for investors. Oil and gas prices initially jumped due to Russia's invasion of Ukraine in February 2022. But in recent months natural gas prices have shaved their gains and oil prices have since fallen to below pre-invasion levels.

Key Takeaways

  • The energy sector has dramatically outperformed the broader market over the past year.
  • The energy exchange-traded funds (ETFs) with the best one-year trailing total returns are PXE, IEO, and FCG.
  • The top holding of each of these ETFs is ConocoPhillips for the first two funds and DCP Midstream LP for the third fund, respectively.

There are 46 energy ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The energy sector, as measured by the S&P 500 Energy sector index, has outperformed the broader market with a total return of 78.5% over the past 12 months compared to the S&P 500’s total return of -8.1%, as of Sept. 9, 2022. The S&P 500 Energy Sector Index captures most of the ETFs in the energy sector. The best energy ETF, based on performance over the past year, is the Invesco Dynamic Energy Exploration & Production ETF (PXE).

We examine the top three energy ETFs below. All numbers below are as of Sept. 9, 2022.
In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.

Invesco Dynamic Energy Exploration & Production ETF (PXE)

  • Performance Over One-Year: 91.6%
  • Expense Ratio: 0.63%
  • Annual Dividend Yield: 1.69%
  • Average Daily Volume: 296,723
  • Net Assets: $288.5 million
  • Inception Date: Oct. 26, 2005
  • Issuer: Invesco

PXE is a multi-cap blended fund that tracks the Dynamic Energy Exploration & Production Intellidex Index. The index includes roughly 30 U.S. companies that are engaged in the exploration and production of oil, natural gas, and other resources. The stocks are chosen based on factors including earnings momentum, price momentum, quality, management actions, and value. The portfolio includes: refineries that process crude oil into finished products such as gasoline; and companies that gather and process natural gas, and also produce natural gas liquids (NGL). Together, large-cap and mid-cap value stocks make up about two-thirds of the fund’s portfolio.

The top three holdings for PXE include ConocoPhillips (COP), Diamondback Energy Inc. (FANG), and Continental Resources Inc. (CLR). All three are energy companies involved in the exploration and production of oil, gas and other resources.

iShares U.S. Oil & Gas Exploration & Production ETF (IEO)

  • Performance Over One-Year: 88.4%
  • Expense Ratio: 0.39%
  • Annual Dividend Yield: 1.96%
  • Average Daily Volume: 288,909
  • Net Assets: $962.1 million
  • Inception Date: May 1, 2006
  • Issuer: BlackRock Financial Management

IEO tracks the Dow Jones U.S. Select Oil Exploration & Production Index, which is comprised of U.S. equities within the oil and gas exploration and production sector. The market-cap-weighted ETF provides exposure to companies engaged in the exploration, production, and distribution. Exploration and production companies receive the largest exposure, accounting for nearly 75% of the portfolio, followed by companies involved in refining, marketing, and transportation. The fund follows a blended strategy, investing in a mix of growth and value stocks of various market caps.

The top three holdings for IEO include ConocoPhillips; EOG Resources Inc. (EOG), an oil and gas exploration and production company; and Marathon Petroleum Corp. (MPC), a downstream energy company focused on refining, marketing and transportation.

First Trust Natural Gas ETF (FCG)

  • Performance Over One-Year: 86.5%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 1.58%
  • Three-Month Average Daily Volume: 1,318,327
  • Assets Under Management: $911.8 million
  • Inception Date: May 8, 2007
  • Issuer: First Trust

FCG tracks the ISE-Revere Natural Gas Index, which is composed of companies that generate a significant amount of their revenue from natural gas exploration and production. The ETF provides exposure to the natural gas industry, which provides fuel source for residential, industrial, and commercial uses. More than 98% of the portfolio is allocated to energy stocks, with less than two percent allocated to utilities. FCG follows a blended strategy, investing in a mix of growth and value stocks with various market capitalizations.

The top three holdings for FCG include DCP Midstream LP (DCP), a midstream company company focused on energy logistics, gathering, and processing as well as producing NGLs; Western Midstream Partners LP (WES), a midstream company focused on crude oil and natural gas; and ConocoPhillips.

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