Best Energy ETFs for Q3 2022

PXE, FCG, and IEO are the best energy ETFs for Q3 2022

Energy exchange-traded funds (ETFs) invest primarily in stocks of natural gas, oil, and alternative energy companies. This doesn't perfectly match up with the companies included in the energy sector in the S&P 500, which includes oil and gas companies. Alternative energy companies are typically categorized as tech sector stocks, or occasionally other sectors. The securities within an energy ETF’s portfolio include major companies such as Enbridge Inc. (ENB), as well as smaller, fast-growing companies such as SunPower Corp. (SPWR).

Because energy ETFs cover a wide variety of businesses, regions, and risk profiles, they offer something for nearly every investor. The ETF approach provides diversification across the industry, allowing investors to gain exposure without taking on the level of risk inherent in investing in a specific energy company. Many energy companies tied to electric vehicles, solar energy, and wind energy may see rising sales and earnings if the Biden administration succeeds in implementing its climate and energy initiatives.

While many of these companies trade as energy stocks, they depend on oil and gas prices. These are measured by the return for the Bloomberg Composite Crude Oil Subindex, which is 83.4% for the past year as of May 18, 2022; and by the return for the Bloomberg Natural Gas Subindex, which is 151.5% during the same period. While these numbers not main benchmarks, they provide important context for investors. Oil and gas prices have jumped as economies around the world recover from the COVID-19 pandemic and in recent months due to the impact of Russia's invasion of Ukraine.

Key Takeaways

  • The energy sector has dramatically outperformed the broader market over the past year.
  • The energy exchange-traded funds (ETFs) with the best one-year trailing total returns are PXE, FCG, and IEO.
  • The top holding of the first two ETFs is Occidental Petroleum Corp., and the top holding of the third is ConocoPhillips.

There are 44 energy ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The energy sector, as measured by the S&P 500 Energy sector index, has outperformed the broader market with a total return of 57.3% over the past 12 months compared to the S&P 500’s total return of -4.4%, as of May 18, 2022. The S&P 500 Energy Sector Index captures most of the ETFs in the energy sector. The best energy ETF, based on performance over the past year, is the Invesco Dynamic Energy Exploration & Production ETF (PXE).

We examine the top three energy ETFs below. All numbers below are as of May 17, 2022.

Invesco Dynamic Energy Exploration & Production ETF (PXE)

  • Performance Over One-Year: 85.8%
  • Expense Ratio: 0.63%
  • Annual Dividend Yield: 1.69%
  • Average Daily Volume: 259,155
  • Net Assets: $285.1 million
  • Inception Date: Oct. 26, 2005
  • Issuer: Invesco

PXE is a multi-cap blended fund that tracks the Dynamic Energy Exploration & Production Intellidex Index. The index includes 30 U.S. companies that are engaged in the exploration and production of natural resources such as oil or natural gas, which are used to produce energy. Stocks are chosen based on factors including price momentum, earnings momentum, quality, management action, and value. The portfolio includes petroleum refineries that process crude oil into finished products, such as gasoline, and companies involved in gathering and processing natural gas, and producing natural gas liquids (NGL). Together, large-cap and mid-cap value stocks make up more than two-thirds of the fund’s portfolio. PXE’s top holdings include Occidental Petroleum Corp. (OXY), an oil and gas exploration and production company that also manufactures chemicals; Valero Energy Corp. (VLO), a maker and marketer of transportation fuels and related products; and Devon Energy Corp. (DVN), a hydrocarbon exploration and production company.

First Trust Natural Gas ETF (FCG)

  • Performance Over One-Year: 77.5%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 1.58%
  • Average Daily Volume: 2,078,940
  • Net Assets: $778.6 million
  • Inception Date: May 8, 2007
  • Issuer: First Trust

FCG tracks the ISE-Revere Natural Gas Index, which is composed of companies that generate a significant amount of their revenue from natural gas exploration and production. The ETF provides exposure to the natural gas industry, which helps to provide an important fuel source for residential, industrial, and commercial uses. Nearly all of the portfolio is allocated to energy stocks, wich less then 2 percent allocated to utilities.Investors may find the fund useful as a way to benefit from increasing demand for natural gas. FCG follows a blended strategy, investing in a mix of growth and value stocks with various market capitalizations. Its top three holdings are Occidental Petroleum; EQT Corp. (EQT), a hydrocarbon exploration and pipeline transport company; and ConocoPhillips (COP), a multinational oil and gas exploration and production company.

iShares U.S. Oil & Gas Exploration & Production ETF (IEO)

  • Performance Over One-Year: 69.9%
  • Expense Ratio: 0.42%
  • Annual Dividend Yield: 1.96%
  • Three-Month Average Daily Volume: 308,248
  • Assets Under Management: $909.5 million
  • Inception Date: May 1, 2006
  • Issuer: BlackRock Financial Management

IEO tracks the Dow Jones U.S. Select Oil Exploration & Production Index, which is comprised of U.S. equities within the oil and gas exploration and production sector. The market-cap-weighted ETF provides exposure to companies engaged in the exploration, production, and distribution. Exploration and production companies receive the largest exposure, followed by companies involved in refining, marketing, and transportation. The fund follows a blended strategy, investing in a mix of growth and value stocks of various market caps. Its top three holdings are ConocoPhillips; EOG Resources Inc. (EOG), an oil and gas exploration and production company; and Pioneer Natural Resources Co. (PXD), an oil and gas exploration and production company.

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  11. ETF Database. "IEO: iShares U.S. Oil & Gas Exploration & Production ETF."

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