Top Energy ETF
Top Energy ETFs to Purchase in 2020
There are two main types of energy ETFs: the ones investing in the firms specializing in conventional energy (like natural gas, petroleum, coal, nuclear power) and those who invest in the businesses engaged in clean and renewable energy (solar, wind, tidal, hydro, biomass power). The portfolios of energy exchange-traded funds can consist of both large energy holdings and promising small-cap firms. Currently, there are about 34 ETFs with AUM of at least $50mln in the sector (exclusive of leveraged and inverse ETFs). Most energy ETFs have diversified portfolios of companies involved in various subsectors and based in multiple locations, which makes their target group of investors quite broad. Exchange-traded funds allow investors to enter the sector avoiding high risks associated with buying stocks of individual companies.
A Few Reasons to Buy Energy ETFs
Energy is the foundation of our civilization. No industry can be imagined without power, which makes the need for power producing and distributing companies inevitable. Over the recent years, the demand for fossil fuels has decreased. Anyway, the nonrenewable energy sector still attracts investors. And some large-cap holdings in the sector are worth billions of USD. However, since the beginning of the millennium, the demand has shifted toward cleaner, more climate-safe energy sources. This has given rise to multiple green energy companies around the globe.
There are few investors who can afford purchasing large volumes of shares of one top energy holding. Exchange-traded funds allow buying stocks of multinational corporations with marginal stakes in many top energy companies simultaneously. Besides, energy market is associated with high volatility. The volumes of renewable energy generated is highly dependent on weather conditions, while oil prices are considerably affected by political events. Diversification of ETFs’ portfolios decreases the risks and protects your investment.
Power generating and distributing enterprises are essential players in the global economy. Most of the world’s electric power is produced by Chinese, USA’s, Indian, Russian and Japanese companies (generating thousands of terawatt-hours of energy each). Purchasing the stocks of energy firms from these nations is a valuable investment that boosts the investor’s global influence. Energy ETFs are especially attractive for experienced investors who are interested in growing from local to international markets.
Which Energy ETFs are the Best?
During the latest years, energy sector has been very risky for investors due to low price of gas and oil. However, the current year seems to be more favorable for those who would like to make money on energy stocks. Different energy ETFs have different approaches, and their portfolios can be quite different. In order to choose which ETF to buy, it is reasonable to compare such parameters as the funds’ AUM, trading volume, expenses, and historical returns. We have compiled the list of funds most likely to profit from the current state and prospects of the energy industry in the current year.
This is the multicap energy ETF with top performance for the third quarter of 2020. It follows the performance of MAC Global Solar Energy Index. The ETF has a diversified portfolio of around 35 solar firms specializing in manufacturing of solar devices, production equipment, and solar materials. Enphase Energy (manufacturer of components for solar systems), Solaredge Technologies (manufacturer of PV arrays), and First Solar (PV module manufacturer) are among its top holdings. TAN was incepted on 15/04/08. The issuer is Invesco. The fund’s AUM is $530.4mln, expenses are 0.71 percent, one-year return is 27.3 percent. It has a three-month average daily trading volume of 556,516 shares and dividend-price ratio of 0.28 percent.
The underlying index is CIBC Atlas Clean Energy Index, consisting of Canada- and USA-based firms engaged in various sectors of green energy (solar, wind, hydro power, etc.). Among the top holdings are Tesla (EV manufacturer), ENPH, and Cree (manufacturer of power equipment and semiconductors). The fund was launched on 29/06/18, its issuer is ALPS. The ETF has AUM of $172.2mln, expenses of 0.65 percent, one-year return of 26.1 percent. The three-month ADTV constitutes 59,224 shares. The annual dividend-price ratio of ACES’s share is 1.83 percent.
The index followed is NASDAQ Clean Edge Green Energy Index. It is a multicap blend fund with a diversified portfolio of various clean energy companies involved in solar, PV, advanced battery, biofuel, and so on. The top holdings are TSLA, Brookfield Renewable Partners (specializing in renewable energy assets), and Universal Display (manufacturing the lighting products). The ETF’s launch date is 14/02/07, the issuer is First Trust. AUM amounts to $177.7mln, expenses are 0.6 percent, one-year return is 25.6 percent. Three-month ADTV is 112,500 shares. Annual dividend-price ratio is 0.86 percent.
Energy Select Sector SPDR Fund (XLE)
There are investors who prefer to buy multiple stocks of a variety of companies throughout the whole sector. XLE is a perfect option for them because of the fund’s broad diversified portfolio. The benchmark index is Energy Select Sector Index, comprised of energy companies based in the United States and including the top oil companies globally. Energy SPDR portfolio includes the firms involved in oil and gas refining & marketing, exploration & production, transportation, related services & equipment, and drilling. The top holdings are ExxonMobil and Chevron, which constitute 40 percent of the ETF’s assets. This can be considered both as the fund’s drawback and advantage. In case of the sector recovery, the share price of both holdings as well as the others will rise, which makes the fund a wise investment choice. The ETF was incepted in Dec, 1998. The fund has assets under management exceeding $11,400mln – the highest among energy ETFs – and expenses as low as 0.13 percent. Year-to-date return is 4 percent. This is one of the most-liquid ETFs with ADTV of 34,330,500. The fund has an opening price of 29.06USD (dated 31/03/20) with a percentage change of 1.54 percent.
Vanguard Energy ETF (VDE)
The index tracked is MSCI U.S. Investable Market Energy 25-50 Index. The fund has a broad portfolio of USA-based energy companies. The ETF was launched in Sept, 2004. The assets under management are $1,989mln. The fund has one of the lowest expenses – only 0.1 percent. The high-liquid fund’s ADTV is 2,269,300. As at date of 31/03/20, VDE’s opening price is 38.22USD and price change is 1.65 percent.
IXC utilizes S&P Global Energy Sector Index, comprised of energy companies around the world. It was established in Nov, 2001. The ETF’s assets under management are $592.6mln, expenses constitute 0.46 percent. The fund is high-liquid with ADTV of 1,282,800. The stock’s open price is 16.89USD, change rate is 2.8 percent.
Alerian MLP ETF (AMLP)
An MLP is an alternative choice for those investors who are not interested in large-cap companies. Most master limited partnerships are engaged in energy infrastructure, consisting of pipelines transporting gas and petroleum from the points of extraction to the sites of refining and further to the market. Around one third of Alerian MLP’s assets are allocated in the firms focused on liquefaction, gathering and processing. The ETF’s dividend yield in 2019 constituted 9 percent. Possible price rising would stimulate production of oil & gas, which would be favorable for the businesses involved in energy transportation. The fund’s AUM is approximately $8,030mln, expenses are 0.85 percent, performance over one year is 7 percent.
United States Oil Fund (USO)
In contrast to the majority of energy stocks, the ETF is directly connected with prices of crude petroleum. The fund is focused on crude oil futures and it follows oil price fluctuations. The crude oil available at the moment is priced higher at the futures market compared to the one for future deliveries. This is favorable for USO benefiting from the current price rising. The fund has AUM of about $1,390mln, expenses of 0.84 percent, and one-year return of 14 percent.