Energy exchange-traded funds (ETFs) invest primarily in stocks of natural gas, oil, and alternative energy companies. The securities within an energy ETF's portfolio include major companies such as Enbridge Inc. (ENB), as well as smaller, fast-growing companies in the sector 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.
- The energy sector has outperformed the broader market over the past year.
- The ETFs with the best one-year trailing total return are FCG, QCLN, and TAN.
- The top holdings of these ETFs are DCP Midstream LP, Albemarle Corp., and Enphase Energy Inc., respectively.
There are 42 energy ETFs that trade in the U.S., 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 36.4% over the past 12 months compared to the S&P 500's total return of 34.0% as of Aug. 12, 2021. The S&P 500 Energy Sector Index is not a perfect benchmark reflecting the universe of energy stocks because many clean energy stocks are classified in other sectors. The index, nonetheless, captures most of the ETFs in the energy sector. The best energy ETF, based on performance over the past year, is the First Trust Natural Gas ETF (FCG). We examine the top three energy ETFs below. All numbers below are as of Aug. 12, 2021.
- Performance Over One-Year: 74.4%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 2.12%
- 3-Month Average Daily Volume: 1,496,942
- Assets Under Management: $245.2 million
- Inception Date: May 8, 2007
- Issuer: First Trust
FCG tracks the ISE-Revere Natural Gas Index, which is comprised of companies that generate a significant amount of their revenue from the exploration for and production of natural gas. The ETF provides investors with exposure to the natural gas industry, which helps to provide an important fuel source for residential, industrial, and commercial uses. Investors may find the fund useful as a way to benefit from an increasing demand for natural gas. FCG follows a blended strategy, investing in a mix of growth and value stocks with various market capitalizations. Its top three holdings include DCP Midstream LP (DCP), a natural gas processing company; Devon Energy Corp. (DVN), an energy company engaged in oil and gas exploration, development, production, and transportation; and ConocoPhillips (COP), a multinational oil and gas exploration and production company.
- Performance Over One-Year: 73.8%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.14%
- 3-Month Average Daily Volume: 346,915
- Assets Under Management: $2.7 billion
- Inception Date: Feb. 8, 2007
- Issuer: First Trust
QCLN tracks the NASDAQ Clean Edge Green Energy Index, which is a modified market-cap-weighted index designed to gauge the performance of U.S. clean energy companies. Most of the ETF's holdings are in the renewable energy equipment, automobile, or alternative electricity industries. The multi-cap fund follows a blended strategy of investing in both value and growth stocks across the U.S. clean energy sector. Its top three holdings include Albemarle Corp., a fine chemical manufacturing company; Tesla Inc. (TSLA), a manufacturer of electric vehicles and energy storage systems; and sponsored ADR Class A shares of NIO Inc. (NIO), a China-based electric car manufacturer.
- Performance Over One-Year: 67.6%
- Expense Ratio: 0.69%
- Annual Dividend Yield: 0.11%
- 3-Month Average Daily Volume: 1,383,683
- Assets Under Management: $3.4 billion
- Inception Date: April 15, 2008
- Issuer: Invesco
TAN tracks the MAC Global Solar Energy Index, which is comprised of companies focused on the solar energy industry. The ETF normally invests at least 90% of its total assets in securities tracked by the index. The sector that receives the largest weighting in the fund is the information technology sector, followed by utilities and industrials. Though globally diversified, the fund is dominated by companies domiciled in the U.S. and China. TAN follows a blended strategy, investing in both value and growth stocks with various market capitalizations. Its top three holdings include Enphase Energy Inc. (ENPH), a developer and manufacturer of microinverter systems for the solar photovoltaic industry; SolarEdge Technologies Inc. (SEDG), an Israel-based provider of solar power optimization and photovoltaic monitoring solutions; and First Solar Inc. (FSLR), a manufacturer of solar panels and provider of related services.
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