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Best Energy ETFs
Inflation fears, a market rotation from growth to value stocks, and words from Federal Reserve chair Jerome Powell have caused the energy ETFs to become some of the top-performing funds in the market.
If you’re thinking about buying one of them, you’re in the right place. Our research has identified the seven best energy ETFs you can buy:
- Energy Select Sector SPDR Fund (XLE)
- Vanguard Energy ETF (VDE)
- iShares Global Clean Energy ETF (ICLN)
- VanEck Oil Services ETF (OIH)
- Direxion Daily Energy Bull 2X Shares (ERX)
- Invesco Solar ETF (TAN)
- Global X Uranium ETF (URA)
XLE, VDE, and OIH are your more traditional energy options and are significantly up on the year.
ICLN and TAN are your renewable energy options and are significantly down on the year.
ERX is your leveraged day-trading option that delivers 2x the daily returns of XLE.
Last but not least: URA. A long-term investment vehicle for those interested in nuclear energy.
Next, we’ll examine each of these energy ETFs in more detail.
#1. Energy Select Sector SPDR Fund (XLE)
- 1-Year Performance: +61.89%
- Expense Ratio: 0.12%
- Annual Dividend Yield: 3.75%
- AUM: $34.89 billion
- 3 Month Avg. Volume: 33,158,750
- Number of Holdings: 23
- Inception Date: 1998
The Energy Select Sector SPDR Fund (XLE) consists of 23 large-capcompanies in the oil, gas, and consumable fuel, energy equipment, and services industry. It essentially tracks the energy sector of the S&P 500 Index.
XLE launched in 1998 and has become the most popular energy ETF on the market.
Its high concentration in blue-chip energy equities like Exxon Mobil and Chevron allows investors to take strategic positions at a more targeted level than traditional index investing.
Regarding the number of holdings, XLE is less diversified than the rest of the ETFs on this list.
But they’re the best of the best in the energy sector. If they’re still around after all these years, they deserve to be.
XLE Top Holding:
- Exxon Mobil (XOM) 24.29%
- Chevron (CVX) 19.95%
- EOG Resources (EOG) 5.05%
- Schlumberger (SLB) 4.66%
- ConocoPhillips (COP) 4.66%
#2. Vanguard Energy ETF (VDE)
- 1-Year Performance: +60.99%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 3.52%
- AUM: $7.30 billion
- 3 Month Avg. Volume: 1,662,617
- Number of Holdings: 104
- Inception Date: 2004
The Vanguard Energy ETF invests in companies whose businesses are primarily involved by either of the following activities: the construction of oil rigs, drilling equipment, and other energy-related services and equipment; or the exploration, production, marketing, refining, and/or transportation of oil and gas products.
In our estimation, this is the only general energy ETF that compares to the previously discussed The Energy Select Sector SPDR Fund (XLE). So, we’ll use this section to compare them more closely.
VDE has three times the number of holdings as XLE, and also includes some mid-sized companies. Remember, XLE is the subset of energy equities in the S&P 500, which consists mainly of large caps.
However, VDE and XLE are similarly concentrated in their top two holdings, Exxon Mobil and Chevron. They account for 38% and 44% of the respective funds.
XLE has outperformed VDE by a small margin in the trailing 12-month period. They pretty much have the same expense ratio (a difference of 0.02%) and offer similarly high dividend yields.
We don’t think it makes sense to own both of the ETFs, so we recommend stacking up these differences to determine which fund best aligns with your investing goals.
VDE Top Holdings:
- Exxon Mobil (XOM) 20.17%
- Chevron (CVX) 17.67%
- ConocoPhillips (COP) 7.52%
- EOG Resources (EOG) 4.04%
- Pioneer Natural Resources (PXD) 3.28%
#3. iShares Global Clean Energy ETF (ICLN)
- 1-Year Performance: -41.18%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 0.67%
- AUM: $4.80 billion
- 3 Month Avg. Volume: 6,231,462
- Number of Holdings: 78
- Inception Date: 2008
The iShares Global Clean Energy ETF provides exposure to companies that produce energy from solar, wind, and other renewable sources.
ICLN’s top sectors include Electric Utilities (25%), Semiconductor Equipment (18%), Renewable Electricity (15%), Heavy Electrical Equipment (14%), and Electrical Components & Equipment (11%).
The fund is primarily invested in the United States (40%), Denmark (12%), Spain (7%), Canada (7%), and China (6%), among a handful of other regions like Portugal, the UK, Germany, Austria, and South Korea.
This ETF launched in 2008 at the peak of financial interest in renewables. It is still off those 2008 highs, down about 70%.
However, we believe that this is one of the best clean energy ETFs you can buy.
ICLN Top Holdings:
- Vestas Wind Systems (VWS: CSE) 7.95%
- Enphase Energy (ENPH) 7.29%
- Consolidated Edison (ED) 6.65%
- Orsted (ORSTED: CSE) 6.00%
- SolarEdge Technologies (SEDG) 4.85%
#4. VanEck Oil Services ETF (OIH)
- 1-Year Performance: +32.57%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.90%
- AUM: $2.66 billion
- 3 Month Avg. Volume: 929,039
- Number of Holdings: 25
- Inception Date: 2001
The VanEck Oil Services ETF tracks an index of 25 U.S.-listed companies involved in the oil services that are upstream of the oil sector, such as the oil equipment, general oil services, and oil drilling.
We view this ETF as a second-order form of exposure to the energy industry. A pick-and-shovel investment play on energy, if you will, almost quite literally.
For example, the top holding Schlumberger creates technologies for oil reservoir characterization, drilling, production, and processing that are used by the global energy industry.
Haliburton, the second-largest holding in OIH, provides products and services for the energy industry’s needs.
OIH companies are the infrastructure of the infrastructure.
This makes room for some small-cap and even micro-cap equities in the fund, which are not common in the legacy energy industry. About 1 in 3 stocks in OIH are of the small-cap type.
Several large-cap OIH equities are also included in the Energy Select Sector SPDR Fund (XLE) and the Vanguard Energy ETF (VDE).
OIH Top Holdings:
- Schlumberger (SLB) 20.89%
- Haliburton (HAL) 12.41%
- Baker Hughes (BKR) 7.70%
- Tenaris (TS) 5.09%
- NOV (NOV) 4.88%
#5. Direxion Daily Energy Bull 2X Shares (ERX)
- 1-Year Performance: N/A
- Expense Ratio: 1.00%
- Annual Dividend Yield: N/A
- AUM: $671 million
- 3 Month Avg. Volume: 4,288,712
- Number of Holdings: 25
- Inception Date: 2008
The Direxion Daily Energy Bull 2X Shares seeks 200% of the Performance of the Energy Select Sector Index daily investment results.
This is a 2x leveraged ETF meant for day-trading sector-wide volatility in the energy industry.
If “energy” (effectively XLE) is up 3% on the day, you can expect ERX to be up 6% on the day.
Due to the daily resetting of leverage and various compounding effects, ERX is not designed to be held for periods longer than a day.
Direxion also offers a leveraged inverse ETF for the bears called the Direxion Daily Energy Bear 2X ETF (ERY).
As you might imagine, the bear version does the exact opposite of the bull version and delivers -2x the returns of XLE.
The leverage and narrow focus will cost you – ERX and ERY charge a 1.00% expense ratio.
If Direxion doesn’t do it for you, ProShares offers similar leveraged bull and bear ETFs with the ticker symbols DIG and DUG, respectively.
They’re 5 basis points cheaper but track the Dow Jones U.S. Oil & Gas Index instead of the Energy Select Sector Index.
ERX Top Holdings:
- Exxon Mobil (XOM) 23.80%
- Chevron (CVX) 19.60%
- EOG Resources (EOG) 4.96%
- ConocoPhillips (COP) 4.55%
- Schlumberger (SLB) 4.54%
#6. Invesco Solar ETF (TAN)
- 1-Year Performance: -45.66%
- Expense Ratio: 0.66%
- Annual Dividend Yield: 0.09%
- AUM: $2.05 billion
- 3 Month Avg. Volume: 1,520,448
- Number of Holdings: 44
- Inception Date: 2008
The Invesco Solar ETF invests in the securities that compose the MAC Global Energy Index, which consists of 42 companies in the solar energy industry.
While this ETF exclusively focuses on solar, there is still significant overlap between it and the previously mentioned iShares Global Clean Energy ETF (ICLN).
Both are heavily allocated to the companies that develop the electronics and technologies used to capture solar energy.
However, TAN is more concentrated in U.S. and China solar companies than ICLN. The duo accounts for 70% of TAN assets and only 46% of ICLN assets.
Like ICLN, the Invesco Solar ETF is still well off its 2008 highs – down around 80%.
TAN Top Holdings:
- SolarEdge Technologies (SEDG) 10.09%
- Enphase Energy (ENPH) 8.34%
- Xinyi Solar Holdings (968:HKG) 7.66%
- First Solar (FLSR) 7.49%
- Sunrun (RUN) 5.05%
#7. Global X Uranium ETF (URA)
- 1-Year Performance: +25.83%
- Expense Ratio: 0.69%
- Annual Dividend Yield: 0.43%
- AUM: $1.15 billion
- 3 Month Avg. Volume: 2,120,552
- Number of Holdings: 46
- Inception Date: 2010
The Global X Uranium ETF provides investors access to a broad range of companies involved in uranium mining and the production of nuclear components, such as those in extraction, refining, exploration, or manufacturing of equipment for the uranium and nuclear industries.
These are predominantly Canadian (49%), Australian (15%), and Kazakhstan (10%) companies in the Energy, Industrials, and Materials sectors of the economy.
The support for nuclear power has increased dramatically in recent decades. It’s perhaps the most abundant, clean, and cheapest form of sustainable energy that is completely agnostic to location – i.e., solar panels need sun and windmills need wind.
Nuclear arguably solves the problems that TAN and ICLN companies are trying to solve, but better, more efficiently, and without the negative effects mining copper, nickel, and cobalt for batteries puts on the environment.
A quote from investor Chamath Palihapitiya is worth mentioning: “If we stopped flying after two airline crashes, where would the world be?”
The Global X Uranium ETF is one of two publicly traded funds that narrowly focus on nuclear power generation, the other being the VanEck Uranium + Nuclear Energy ETF (NLR).
NLR is a much smaller fund in terms of AUM but has an optimal mix of equities across the nuclear value chain and is more invested in the construction, engineering, and maintenance of nuclear power facilities and nuclear reactors than URA.
Please note that these two ETFs require long-term time horizons. The U.S. nuclear energy industry will face tons of litigation and bureaucracy before it will ever scale in a meaningful way.
URA Top Holdings:
- Cameco (CCO:TSE) 22.76%
- National Atomic Company Kazatomprom (KAP: LON) 9.78%
- NextGen Energy (NXE) 7.52%
- Paladin Energy (PDN: ASX) 5.97%
- Denison Mines (DML: TSE) 4.44%
Best Energy ETFs: Alternatives
You might be interested in commodity ETFs if none of these energy ETFs did it for you. Some of the crude oil, silver, and gold ETFs are performing well as fears of inflation increase.
Another option is to find a subsector of the energy sector and invest in a thematic ETF. The clean energy funds in this article exemplify this strategy, but they’re just the tip of the iceberg.
If you were looking into energy ETFs because you wanted high dividends, you’re in luck. We recently compiled a list of the best dividend stocks across several sectors.
Blockchain ETFs are the last alternative strategy we’ll mention to gain energy exposure.
Bitcoin mining will have revolutionary impacts on the renewable energy industry as miners create new technologies to reduce operational costs.
Best Energy ETFs: Frequently Asked Questions
Which energy ETF is best?
The best energy ETF is either the Energy Select Sector SPDR Fund ETF (XLE) or the Vanguard Energy ETF (VDE). These are the best-performing energy ETFs with low fees and adequate diversification across the industry.
What is the best clean energy ETF for 2022?
The best clean energy ETFs for 2022 are the iShares Global Clean Energy ETF (ICLN), the Invesco Solar ETF (TAN), the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN), and the Global X Autonomous & Electric Vehicles ETF (DRIV).
What is the biggest energy ETF?
The biggest energy ETF by assets under management is the Energy Select Sector SPDR Fund ETF (XLE). It has accumulated $34.89 billion in assets since it launched in 1998.
Bottom Line: Best Energy ETFs
You’re now familiar with seven of the best energy ETFs on the market.
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This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we selected the best Energy ETFs.
