Oil exchange-traded funds (ETFs) offer direct access to the oil market by tracking the price of oil as a commodity. This approach is different from investing in funds that own a portfolio of oil stocks. There is potential for significant returns through investing in the oil sector, but risks remain high amidst the ongoing COVID-19 pandemic. Oil prices historically have been prone to quick, dramatic swings up and down. Oil futures have significantly underperformed the broader market over the past year, with a 1-year price change of -17.5% as compared with 1-year trailing total returns of 19.1% for the S&P 500. 

Key Takeaways

  • Oil futures have dramatically underperformed the broader market over the past year.
  • The top ETFs based on 1-year trailing total returns are DBO, USL, and BNO.
  • The top holdings of these ETFs are light sweet crude oil (WTI), light sweet crude oil (WTI), and Brent crude oil, respectively.

There are currently 5 oil ETFs, excluding inverse and leveraged funds as well as those with under $50 million in assets under management (AUM). Note that these ETFs follow oil as a commodity, not oil companies. The best oil ETF for Q4 2020 is the Invesco DB Oil Fund (DBO). Below, we'll look at the top 3 oil ETFs for Q4 2020 as measured by 1-year trailing total returns. While each of these funds has negative total returns for the period in question, these are the top performing ETFs in this category. All figures are as of August 18, 2020.

Invesco DB Oil Fund (DBO)

  • 1-year Trailing Total Returns: -16.2%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: 2.28%
  • 3-Month Average Daily Volume: 1,816,749
  • Assets Under Management: $475.5 million
  • Inception Date: January 5, 2007
  • Issuer: Invesco

The Invesco DB Oil Fund offers exposure to sweet light crude oil by tracking the DBIQ Optimum Yield Crude Oil Index Excess Return, which is a rules-based index composed of futures contracts on Light Sweet Crude Oil (WTI), the preferred crude in the majority of the world. The goal of the fund is to reflect the broader performance of crude oil. The fund is structured as a commodity pool, an investment vehicle which pools investor assets in order to trade in futures or commodities markets. The sole holding of this fund is light sweet crude oil (WTI).

United States 12 Month Oil Fund (USL)

  • 1-year Trailing Total Returns: -20.0%
  • Expense Ratio: 0.82%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 544,969
  • Assets Under Management: $245.8 million
  • Inception Date: December 6, 2007
  • Issuer: USCF

Like DBO above, USL is a commodity pool utilizing futures contracts and offering exposure to light sweet crude oil. It tracks the commodity's delivery to Cushing, Oklahoma, a major trading hub and price-settlement point for oil. One way that USL is set apart from other oil funds is that it diversifies across multiple maturities, helping to mitigate risk. The sole holding of this fund is sweet light crude oil (WTI).

United States Brent Oil Fund (BNO)

  • Performance over 1 year: -32.7%
  • Expense Ratio: 0.90%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 1,689,315
  • Assets Under Management: $418.5 million
  • Inception Date: June 2, 2010
  • Issuer: USCF

United States Brent Oil Fund, a futures-based commodity pool, does not track West Texas Intermediate (WTI), like the two funds above. Rather, BNO tracks Brent Crude Oil, the benchmark for the EMEA region. Because Brent often trades at a different price from WTI, BNO can be a useful way of gaining alternative exposure. The sole holding of BNO is Brent Crude Oil.