Oil and gas exchange-traded funds (ETFs) offer investors more direct and easier access to the often volatile energy market than many other alternatives. While there is the potential for significant returns by investing in the oil and gas sector, the risks can be high. Oil futures, for example, tend to be volatile and often require a significant initial investment, which excludes many investors. By contrast, oil and gas ETFs offer access to a basket of energy equities. While some oil and gas ETFs track futures contracts or commodities prices, the ETFs below are solely focused on stocks.
The ETFs with the best 1-year trailing total return are FCG, AMZA, and PXE.
The top holding of each of these ETFs is DCP Midstream LP, MPLX LP, and Continental Resources Inc., respectively.
The universe of oil and gas ETFs that trade in the U.S. is comprised of about 27 ETFs, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The oil and gas sector, as measured by the S&P 500 Energy Sector Index, has performed on par with the broader market, posting a total return of 33.2% over the past 12 months compared to the S&P 500’s total return of 33.5%. A special note that while the S&P energy index is a good general indicator, it’s not a perfect match because the benchmark includes mostly, but not all, oil and gas companies. The best-performing oil and gas ETF, based on performance over the past year, is the First Trust Natural Gas ETF (FCG). We examine the top 3 oil and gas ETFs below. Performance figures above are as of Aug. 17, while all other figures throughout are as of Aug. 18.
Performance over 1-Year: 63.8%
Expense Ratio: 0.60%
Annual Dividend Yield: 2.28%
3-Month Average Daily Volume: 1,470,985
Assets Under Management: $225.5 million
Inception Date: May 8, 2007
Issuer: First Trust
FCG is a multi-cap, blended fund targeting the ISE-Revere Natural Gas Index. The index holds exchange-listed companies that derive a significant portion of revenue from the exploration and production of natural gas. FCG allocates its investments relatively equally across its top 10 holdings, which account for over 45% of invested assets. Investors should note that FCG is essentially a leveraged play on underlying natural resources, which makes the ETF vulnerable to significant volatility. The top holdings of the fund include DCP Midstream LP (DCP), Devon Energy Corp. (DVN), and ConocoPhillips (COP), all of which are energy companies engaged in the exploration and production of natural gas and related products.
Performance over 1-Year: 58.3%
Expense Ratio: 2.01%
Annual Dividend Yield: 10.45%
3-Month Average Daily Volume: 128,523
Assets Under Management: $278.8 million
Inception Date: Oct. 1, 2014
Issuer: Virtus Investment Partners
AMZA is an actively managed fund with a focus on midstream master limited partnerships (MLPs) with high current income. The fund typically uses modest leverage of 20-30% to enhance MLP beta. The fund follows a blended strategy and invests in companies across the market capitalization spectrum. The top holdings of AMZA include MPLX LP (MPLX), Western Midstream Partners LP (WES), and Magellan Midstream Partners (MMP), all of which are midstream MLP companies focused on oil and gas production and services.
Performance over 1-Year: 54.0%
Expense Ratio: 0.63%
Annual Dividend Yield: 2.31%
3-Month Average Daily Volume: 78,438
Assets Under Management: $70.6 million
Inception Date: Oct. 26, 2005
PXE is a multi-cap, blended fund which tracks the Dynamic Energy Exploration & Production Intellidex Index. The index is comprised of 30 U.S. companies involved in the exploration and production of natural resources used to produce energy, selected based on factors including price momentum, earnings momentum, quality, management action, and value. Small-cap value stocks make up more than half of the portfolio, followed by mid-cap value stocks. The top holdings of PXE include Continental Resources Inc. (CLR), ConocoPhillips, and Pioneer Natural Resources (PXD), all of which are energy companies engaged in the exploration and production of natural gas and related products.
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