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Oil exchange-traded funds (ETFs) offer direct access to the oil market by tracking the price of oil as a commodity. This approach is different from investing in funds that own a portfolio of oil stocks. There is potential for significant returns through investing in the oil sector, but risks remain high amid the COVID-19 pandemic and the resulting massive disruption of economies worldwide.
Oil prices historically have been prone to quick, dramatic swings up and down. Oil ETFs provide investors a straightforward way to gain exposure to those price swings without having to buy and store the physical commodity or navigate the complexities of investing in oil futures contracts.
Key Takeaways
- Oil prices have dramatically outperformed the broader stock market over the past year.
- The oil exchange-traded funds (ETFs) with the best one-year trailing total return are OIL, USO, and BNO.
- The top holdings of the first and second of these ETFs are futures contracts for West Texas Intermediate (WTI) light sweet crude oil, and the top holding of the third are futures contracts for Brent Crude oil.
There are six distinct oil commodity 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). Oil prices, as measured by the Bloomberg Composite Crude Oil Subindex, have climbed by 63.4% over the past 12 months, significantly outperforming the S&P 500’s total return of 17.1%, as of Feb. 8, 2022. The best-performing oil ETF, based on performance over the past year, is the iPath Pure Beta Crude Oil ETN (OIL). We examine the top three oil ETFs below. These ETFs focus on oil as a commodity rather than oil company stocks. All numbers below are as of Feb. 8, 2022.
- Performance Over One-Year: 64.3%
- Expense Ratio: 0.85%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 60,483
- Assets Under Management: $115.8 million
- Inception Date: April 20, 2011
- Issuer: Barclays Capital
OIL is structured as an exchange-traded note (ETN), a type of unsecured debt security that tracks an underlying index of securities and trades on a major exchange like a stock. OIL targets the Barclays WTI Crude Oil Pure Beta TR Index. The index reflects the returns that are potentially available through an unleveraged investment in crude-oil market futures contracts. The Index may roll into one of several contracts with different expiration dates. OIL’s sole holding is futures contracts of West Texas Intermediate (WTI) sweet light crude oil. The fund is suitable for investors looking to make speculative bets on the price of oil and who have a high tolerance for the risks associated with volatile markets.
- Performance Over One-Year: 63.4%
- Expense Ratio: 0.79%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 6,222,371
- Assets Under Management: $2.6 billion
- Inception Date: April 10, 2006
- Issuer: Concierge Technologies
USO is structured as a commodity pool, a private investment structure that combines investor contributions to trade the futures and commodities markets. USO targets a benchmark futures contract that is the near month WTI crude oil futures contract for light, sweet crude oil delivered to Cushing Oklahoma that is traded on the New York Mercantile Exchange (NYMEX). USO invests in other oil-related contracts, and may invest in forwards and swap contracts. The
ETF is often subject to severe contango, making it a more appealing investment for short-term investors. The sole holding of USO is futures contracts of WTI sweet light crude oil.
- Performance Over One-Year: 62.8%
- Expense Ratio: 1.13%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 1,102,195
- Assets Under Management: $253.2 million
- Inception Date: June 2, 2010
- Issuer: Concierge Technologies
Like USO, BNO is structured as a commodity pool. BNO’s objective is for the daily percentage changes in its shares’ net asset value (NAV) to reflect the daily percentage changes in the spot price of Brent Crude oil, as measured by changes in price of BNO’s Benchmark Oil Futures Contract. The benchmark is a near-month futures contract that is traded on the ICE Futures Exchange. Because Brent Crude often trades at a different price from WTI, BNO can be a useful way of gaining alternative exposure. Its primary holdings are Brent Crude oil futures contracts and other oil-related futures contracts. BNO may also invest in forwards and swap contracts.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
