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 amid the COVID-19 pandemic and the resulting massive disruption of economies worldwide. Oil prices historically have been prone to quick, dramatic swings up and down. Oil ETFs provide investors a straightforward way to gain exposure to those price swings without having to buy and store the physical commodity or navigate the complexities of investing in oil futures contracts.
- Oil prices dramatically underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are DBO, USL, and BNO.
- The top holdings of the first two ETFs are futures contracts for Sweet Light Crude Oil (WTI), and the top holdings of the third are futures contracts for Brent Crude Oil.
There are currently 5 distinct oil 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). Oil prices have fallen 27.1% over the past twelve months, dramatically underperforming the S&P 500's total return of 17.9%, as of November 11, 2020. The best-performing oil ETF, based on performance over the past year, is the Invesco DB Oil Fund (DBO). We examine the top 3 oil ETFs below. These ETFs focus on oil as a commodity rather than stocks of oil producers. All numbers below are as of November 12, 2020.
- Performance over 1-Year: -25.5%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 2.36%
- 3-Month Average Daily Volume: 798,661
- Assets Under Management: $415.6 million
- Inception Date: January 5, 2007
- Issuer: Invesco
DBO 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 only holdings of this fund are futures contracts for light sweet crude oil (WTI).
- Performance over 1-Year: -28.5%
- Expense Ratio: 0.82%
- Annual Dividend Yield: N/A
- 3-Month Average Daily Volume: 150,418
- Assets Under Management: $200.2 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 futures contracts of multiple maturities, helping to mitigate risk. The only holdings of this fund are futures contracts of sweet light crude oil (WTI).
- Performance over 1-Year: -42.4%
- Expense Ratio: 0.90%
- Annual Dividend Yield: N/A
- 3-Month Average Daily Volume: 937,176
- Assets Under Management: $330.5 million
- Inception Date: June 2, 2010
- Issuer: USCF
BNO, a futures-based commodity pool, does not track West Texas Intermediate (WTI), like the two funds above. Rather, BNO tracks the spot price of Brent Crude Oil, the crude oil 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 only holdings of BNO are futures contracts for Brent Crude Oil.
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