Wall St.

The Best ETFs to Play Energy Markets Right Now | OilPrice.com

As analysts are busy explaining the impact on oil prices of the November 8 U.S. election, China’s zero COVID policy going forward, inflation, production and inventory figures, funds Exchange-traded funds (ETFs) are a great way to play on high commodity prices amid a global energy crisis and conflict in Europe. Most, but not all, ETFs are passive, and passive investing has been leveraged to continue surpassing its more active brethren amid the current period of heightened uncertainty.

An explosion of ETFs has gripped the financial market as exchange-traded funds carve out the lion’s share of investment dollars globally, even as investors continue to shift to passive funds and eschew actively managed mutual funds.

The following funds could help you hedge against inflation and geopolitical uncertainty.

Energy Select Sector SPDR ETF

AUM: $42.8 billion

Expense ratio: 0.11%

Dividend yield (FWD): 3.45%

Cumulative returns since the beginning of the year: 54.7%

With over $40 billion in assets under management (AUM), the Energy Select Sector SPDR ETF (NYSEARCA:XLE) is the largest fund dedicated to energy. It is also the most liquid and among the cheapest, with a spend rate of only 0.11%.

XLE tracks the price and yield performance of companies across the Energy Selection Sector Index. The index offers investors broad exposure to companies in the oil, gas and energy equipment sectors.

Related: Kazakhstan prepares to boost oil exports

Another key attraction: the ETF has a respectable dividend yield of 3.45% (FWD).

One of its flaws is that the ETF only holds 26 stocks in its portfolio, with ExxonMobil (NYSE:XOM) and Chevron Corporation.(NYSE: CVX) over-represented, representing more than 40% of the total portfolio value.

Vanguard Energy ETF

AUM: $11.0 billion

Expense ratio: 0.10%

Dividend yield (FWD): 3.23%

Cumulative returns since the beginning of the year: 54.9%

Vanguard funds are traditionally notorious for undermining cost competition, and the Vanguard Energy ETF (NYSEARCA: VDE) has remained true to this philosophy by offering the lowest prices in the industry.

With 110 stocks – albeit with far less AUM than XLE – VDE is far better diversified than XLE, although XOM and CVX still play outsized roles with weightings of 22.4% and 16.2%, respectively.

VDE tracks the performance of the MSCI US Investable Market Index (IMI)/Energy 25/50an index comprised of stocks of large and mid-cap US energy companies.


AUM: $2.1 billion

Expense ratio: 0.83%

Dividend yield (FWD): N/A

Cumulative returns since the beginning of the year: 30.7%

The US Oil ETF, LP (NYSEARCA: USO) seeks to track daily percentage changes in the spot price of light sweet crude oil delivered to Cushing, Oklahoma. The USO primarily invests in futures contracts for light, sweet crude oil, other types of crude oil, diesel heating oil, gasoline, natural gas, and other petroleum-based fuels.

In April 2020, the USO gained notoriety after being at the center of the worst oil crash in history. WTI futures fell 310% to minus $38.45 a barrel, marking the first time a U.S. crude price futures contract has turned negative – and made all those predictions suddenly seem prescient apparently improbable on “negative oil”.

Negative oil prices are an absurd notion that basically means that producers would pay traders to get rid of oil. USO, the nation’s largest crude oil exchange-traded fund (ETF), was to blame for the debacle as it held 25% of open volume in May’s WTI oil futures.

Fortunately, a repeat of this kind of chaos is unlikely after USO moved 20% of the WTI contracts it holds in the following months in an effort to reduce volatility. And there is no chance of negative oil right now.

Direction Daily S&P Oil & Gas Exp. & Prod. Bull 2x Equity ETF

AUM: $800.6 million

Expense ratio: 0.95%

Dividend yield (FWD): 0.39%

Cumulative returns since the beginning of the year: 84.3%

The Direction Daily S&P Oil & Gas Exp. & Prod. Bull shares 2x (NYSEARCA: GUSH) is a traded index fund that was launched by Direxion Investments in May 2015.

GUSH invests in the public equity markets of the United States. The fund uses derivatives such as futures and swaps to build its portfolio and invests in growth and value stocks of companies with diverse market capitalizations. It seeks to track 2x the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index (SPSIOP). Being a leveraged fund, GUSH is subject to wild daily swings, especially when oil prices are volatile.

Inverted ETFs

Inverse and inverse leveraged ETFs create an inverse short position or an inverse leveraged short position in the underlying index through the use of swaps, options, futures and other instruments financial. Thanks to their compounding effect, investors can benefit from higher returns over short periods, provided the trend prevails.

Short sellers now resort to trading inverse ETFs that bet against the S&P500 such as ProShares UltraPro Short S&P500 (SPX), UltraPro Short Russell2000 (SRTY), Dow Jones Internet Bear 3X Daily Stocks ( CANVAS), ProShares UltraPro Short QQQ (SQQQ), and ProShares UltraPro Short Dow30 (SDOW). All of these inverse ETFs are in the green, with WEBS having really outperformed with a 201.7% return year-to-date.

By Alex Kimani for Oilprice.com

More reading on Oilprice.com:

#ETFs #Play #Energy #Markets #OilPrice.com

Leave a Comment

Your email address will not be published. Required fields are marked *