Best Energy ETFs for Q1 2022

Energy exchange-traded funds (ETFs) invest primarily in stocks of natural gas, oil, and alternative energy companies. The securities within an energy ETF’s portfolio include major companies such as Enbridge Inc. (ENB), as well as smaller, fast-growing companies in the sector 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.

After plunging in the spring of 2020, in the 2021 calendar year, crude oil futures increased by 56% on the New York Mercantile Exchange (NYMEX). During the same period, natural gas futures jumped nearly 40%.

Oil prices’ outsized gains have been fueled by both a recovering global economy and oil demand that’s outpacing supply. The benchmark Bloomberg Brent Crude Subindex has a total return of 66% as of Jan. 7, 2022, and the Bloomberg Natural Gas Subindex rose by 28% in 2021.

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 49% over the past 12 months compared to the S&P 500’s total return of 25%, as of Jan. 7, 2022.

The S&P 500 Energy sector index is not a perfect benchmark reflecting the universe of energy stocks, because many clean energy stocks are classified in other sectors. Nonetheless, the index captures most of the ETFs in the energy sector. The best energy ETF, based on performance over the past year, is the First Trust Natural Gas ETF (FCG).

We examine the top three energy ETFs below. All numbers below are as of Jan. 7, 2022.

• Performance Over One-Year: 89.23%
• Expense Ratio: 0.60%
• Annual Dividend Yield: 1.82%
• Average Daily Volume: 1,422,261
• Net Assets: $300.58 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 the exploration for and production of natural gas. The ETF provides investors with exposure to the natural gas industry, which helps to provide an important fuel source for residential, industrial, and commercial uses. Investors may find the fund useful as a way to benefit from an 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 ConocoPhillips (COP), a multinational oil and gas exploration and production company; EOG Resources Inc. (EOG), an oil and gas exploration and production company; and Occidental Petroleum Corp. (OXY), an oil and gas exploration and production company that also manufactures chemicals.

• Performance Over One-Year: 92.33%
• Expense Ratio: 0.63%
• Annual Dividend Yield: 2.16%
• Average Daily Volume: 120,6342
• Net Assets: $75.36 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 is composed 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.

The fund’s portfolio also includes petroleum refineries that process crude oil into finished products, such as gasoline and automotive lubricants, and companies involved in gathering and processing natural gas and manufacturing natural gas liquids (NGL). Together, small-cap and midcap value stocks make up more than 75% of the fund’s portfolio.

PXE’s top holdings include Coterra Energy Inc. (CTRA), a diversified hydrocarbon exploration company; and Occidental Petroleum and EOG Resources, both described above.

• Performance Over One-Year: 68%
• Expense Ratio: 0.60%
• Annual Dividend Yield: 0.57%
• Average Daily Volume: 135,815
• Net Assets: $69.4 million
• Inception Date: Oct. 12, 2006
• Issuer: Invesco

PXI is a multi-cap blended fund that targets the Dorsey Wright Energy Technical Leaders Index. The index is composed of 30 securities from the Nasdaq US Benchmark Index that show relative strength vs. competitors within the industry or sector.

More than 90% of PXI’s holdings are within the oil, gas, and consumable fuels industries, although the fund also holds companies in energy equipment and services, semiconductors, and metals and mining. Just under half of holdings represent small-cap value stocks.

The top holdings of PXI include Ovintiv Inc. (OVV), a hydrocarbon exploration and production company; Cheniere Energy Inc. (LNG), a liquefied natural gas company; and Range Resources Corp. (RRC), a petroleum and natural gas exploration and production company.

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