Best ETFs for Investing in Oil & Gas
Freitag, 5. August 2022
Invest in Oil & Gas ETFs
Reasons for investing in Oil & Gas:
There are a few reasons why investing in oil and gas can be beneficial. First, the world is still very reliant on fossil fuels, meaning that there is still high demand for oil and gas. Additionally, prices for these commodities tend to be volatile, which can create opportunities for investors. But beware, certain countries or regions may be more attractive than others when it comes to investing in oil and gas due to factors such as political stability or access to resources. With a diversified ETF, the oil and gas industry provides investors with unique opportunities to profit from rising energy prices and the increasing global demand for energy. The industry is one of the most capital-intensive industries in the world, which means that there is a large potential market for investors who are looking for high-yield investments. The risks associated with investing in Energy in general are also relatively low compared to other industries, making it an attractive option for risk-averse investors. Finally, the oil and gas industry is expected to continue to grow in the coming years, which means that there is a good chance that investments made today will pay off handsomely in the future. Nevertheless, there are also risks in the much smaller "Oil and Gas" segment, which we would like to highlight later.
We believe the best oil and gas ETFs provide the most exposure to the industry while maintaining a good balance between risk and return. Ideally, they provide investors with access to a wide range of oil and gas companies with different levels of risk and potential returns. So we're going to rank them according to these criteria: from diverse to more targeted. Please bear in mind that individual thematic ETFs such as the following should not constitute the majority of your portfolio. Because they target fewer than 100 companies, they are already far riskier than more diversified ETFs. We think any targeted investment topic like oil and gas should not exceed 5% of your portfolio to manage risk.
The best ETFs for investing in Oil & Gas:
1. iShares US Oil & Gas Exploration & Production ETF (IEO)
Medium diversified oil & gas ETF with 100% exposure to U.S. assets in exploration & production
The first ETF comes from the market leader iShares and offers a good package with a complete focus on U.S assets. With 51 positions, diversification is medium but high within the oil and gas sector. However, the focus is 100% on the United States. This should be kept in mind. The sector distribution, on the other hand, looks more diversified. Oil producers, pipeline operators, liquified gas producers, and liquified gas terminal operators - all are in the ETFs holdings. However, the big well-known companies like Chevron, Exxon, Shell and BP are not among them. The top holdings are: ConocoPhillips (17%), EOG Resources Inc (9%), Pioneer Natural Resources Co (7%) and Marathon Petroleum Corp (7%). Fund assets are sufficiently high for this theme ETF at around $797.1 million and distributions are made quarterly. The cost of this ETF is a bit higher at 0.42%.
Dividend yield: 2.92% (12-months)
2. First Trust Nasdaq Oil & Gas ETF (FTXN)
Medium diversified oil & gas ETF with 100% exposure to U.S. assets
This First Trust ETF has 49 positions and a medium diversification. A look at the holdings shows us some very interesting companies, which are also in the portfolio of Warren Buffett. For example Chevron and Occidental Petroleum. You can also find a few well-known names here like Exxon Mobil and Kinder Morgan. Overall the holdings look very interesting, but the expense ratio of 0.6% is high. With $955 million in total net assets the ETF is well positioned. Top holdings are Occidental Petroleum Corporation (8.79%), PBF Energy Inc. (7.68%), The Williams Companies, Inc. (6.30%), Marathon Oil Corporation (6.29%) and Chevron Corporation (6.24%).
Dividend yield: 1.85% (12-months)
3. SPDR S&P Oil & Gas Equipment & Services ETF (XES)
Low diversified oil & gas ETF with 92% exposure to U.S. assets in the equipment and services segment
The SPDR ETF focuses on oil & gas equipment and services companies. The expense ratio is with 0.35% good. The total assets under management are in the mid-field with $216,4 million. The ETF has 31 holdings and the top 10 holdings account for 47% of the total portfolio. 92% of the investments are in North America. Just 2,8% are from Europe developed and 4,4% from Latin America. The ETF has no overweight in individual positions. All top 10 companies have an equal share of 5% in the ETF - You can find names like: Schlumberger Ltd, ChampionX Corp, TechnipFMC PLC, Helmerich & Payne Inc and Valaris Ltd.
Dividend yield: 0.42% (12-months)
4. VanEck Oil Refiners ETF (CRAK)
Low diversified oil & gas ETF with worldwide exposure in the refining segment
VanEck ETFs are entirely focused on petroleum refining companies. It distributes its dividend on an annual basis and has a total cost of 0.59%. It has relatively small net assets, with only $50.7 million. The major companies owned are Reliance Industries Ltd ADR (8.63%), Marathon Petroleum Corp (7.45%), Neste Corp (7.42%), Valero Energy Corp (6.17%) and Phillips 66 (6.11%). This ETF is not just focussing on the U.S - Its top regions are: North America (27,07%), Europe developed (17.19%), Asia developed (14.07%) and Europe emerging (12.41%). With only 25 holdings with top 10 accounting for 60% of the total portfolio, diversification is weak. If you just want to focus on the petroleum refining industry, this is a targeted ETF.
Dividend yield: 2.18% (12-months)
5. First Trust Natural Gas ETF (FCG)
Medium diversified natural gas ETF with 94% exposure to U.S assets
This ETF is fully geared towards natural gas companies. However, businesses do not have to act exclusively in this area, but can have only one sector of activity in the natural gas sector. The costs are slightly higher at 0.6 per cent. Total assets under administration are $660.3 million. It has 49 holdings, of which the top 10 account for 38% of the total assets. All companies are 100% located in North America. The most prominent firms are Western Midstream Partners LP (5%), DCP Midstream LP (5%), Hess Midstream LP Class A (4%), Occidental Petroleum Corp (4%) and ConocoPhillips (4%).
Dividend yield: 2.22% (12-months)
The risks of investing in oil and gas
The risks of investing in oil and gas are many and varied. They include the political risk arising from instability in countries where production takes place, as well as environmental risks associated with spills and other accidents. There is also the financial risk that comes with volatile commodity prices, which can make it difficult to predict returns on investment. Additionally, oil and gas companies only make up a small percentage of the world's economy. So generally investing in this kind of theme-ETF is riskier than investing in the overall energy sector for example with the iShares Global Energy ETF (IXC) or the Vanguard Energy ETF (VDE)
ETF EASE shall not be liable for any loss and/or damage arising from the use of the information on this website. All investors are advised to conduct their own independent research before making any investment decision and to recognize that past performance is no guarantee of future price appreciation.