In this piece, we will take a look at the ten best performing energy ETFs in 2023. If you want to skip our overview of the energy industry and some recent trends, then take a look at the 5 Best Performing Energy ETFs in 2023.
The energy industry has been in constant flux and turmoil since the outbreak of the coronavirus pandemic. Lock downs and travel restrictions aimed at curtailing the virus’s spread and the burden on hospitals sapped global demand for fossil fuels and led to crude oil prices touching historic lows. Then, a couple of years later, the industry was in for another shock in the form of the 2022 Russian invasion of Ukraine. Russia is one of the biggest suppliers of oil and natural gas in the world, and the war caused oil prices to soar as Western oil supply diversification and sanctions against Russia shook the market.
As opposed to the coronavirus oil price crash, the 2022 price jump proved to be a boon for oil companies and their stocks. Big oil bathed in record high profits and passed some of these to investors in the form of dividends. Looking at the share price, big oil giants such as Exxon Mobil Corporation (NYSE:XOM) whose share price closed at $61 in 2021, saw their stock soar as investors flocked to the safety of oil in a high inflation and high interest rate environment. Exxon’s stock closed 2022 at $110 as it nearly doubled in value.
Now, the tail end of 2023 is once again seeing some jitters in the oil market. As opposed to 2022, when oil prices only soared due to supply disruptions, 2023 has seen them see-saw in response to global economic and geopolitical developments. One of the biggest drivers of oil prices in 2023 has been China’s economic prospects. The start of the year saw optimism about one of the world’s largest economies as analysts speculated that post COVID China would rapidly grow and increase its demand for crude oil to drive the price higher.
However, the Chinese recovery has been slow and has hampered oil prices as well. This has forced Saudi Arabia and Russia to cut their daily oil production so that prices remain high and they can balance their national budgets. So what’s happening to oil right now? Well, according to the International Energy Agency (IEA), as of September 2023, global oil demand started to drop led by a reduction in gasoline consumption in America to twenty year low levels aided by flooding and other events that discouraged people from driving more. At the same time, some quarters also believe that a slowdown in the services sector is also responsible for this drop, with speculation that a slower demand trend could push gasoline prices in the U.S. to $3 a gallon. However, slowing demand in America is countered by growth in China, Brazil, and India, which pushed global oil demand to 101.9 million barrels per day after it grew by 2.3 million barrels. China accounts for 77% of this growth, indicating that Beijing is acting as a stabilizing factor for global oil prices.
Additionally, as we settle into November, oil analysts and governments all over the world are taking some sighs of relief as the conflict between Israel and Palestine has not yet translated into a catastrophe for the global oil market. More than 30% of global oil supplies are routed through the Middle East, and any escalation of conflict in the region, such as Arab countries entering into military conflict with Israel, carries the risk of shocking the global oil market and causing prices to skyrocket. This would be nothing short of devastating for the global economy, perhaps even far more than it would have been had the conflict taken place a couple of years back. This is because high oil prices feed into inflation, and all that stock market investors and analysts have focused on in 2022 and 2023 are steps taken by central banks such as the Federal Reserve to control inflation. These steps are primarily in the form of high interest rates, which act as a counter to economic growth as they increase the costs of doing business. So, if oil prices soar further, then central banks might be forced to increase interest rates even more, and finally tip economies into a recession – an outcome that has been avoided so far.
Shifting gears, November also marks the end of the earnings season in America. This has seen big oil decline after 2022’s record performance. For instance, Exxon Mobil Corporation (NYSE:XOM)’s third quarter earnings saw it post $9.1 billion in profit and miss analyst estimates in yet another quarter. To assuage investors, the firm also increased its dividend by 4% to 95 cents a share, and management touted the strength of its balance sheet and high cash reserves as an adequate buffer against any downturns in the commodity price cycle. Another oil giant, Chevron Corporation (NYSE:CVX), also missed analyst EPS estimates for its third quarter, sending the shares down by 5.4%. The oil company’s third quarter profit stood at $6.5 billion for a sharp drop from the year ago quarter’s $11.2 billion. BP p.l.c. (NYSE:BP), the British oil giant, joined Chevron and Exxon in missing analyst profit estimates of $4 billion for the third quarter as it posted $3.3 billion in profit.
Finally, before we look at which energy ETFs were the top performers in 2023 during this turbulent time, here’s what the management of Chevron Corporation (NYSE:CVX) had to share about the energy industry during the firm’s third quarter of 2023 earnings call:
Yes, Roger. Look, I’ll let Pierre cover this in a little more detail, but there’s – I recognize this quarter was a tough one to model. And there’s pretty material or significant non-cash charges. Timing effects, primarily inventory costs, we see with rising prices some tax reserves and charges for legal abandonment and other things and then some lower realizations with your mix and the lag effect in some of our LNG pricing. On timing and inventory costs in particular, on period-to-period comparisons where we had a prior period, whether it was last quarter or the same quarter last year, where prices were coming down and then in the current period, we see prices strengthening significantly, you really get pretty significant deltas on the way we cost inventory.
With these details in mind, let’s take a look at the best performing energy ETFs in 2023. Some top performers are VanEck Uranium+Nuclear Energy ETF (NYSE:NLR), ETRACS Quarterly Pay 1.5X Leveraged Alerian MLP Index ETN (NYSE:MLPR), and JPMorgan Alerian MLP Index ETN (NYSE:AMJ).
A wind turbine in a rural landscape, highlighting the companies commitment to clean energy.
Our Methodology
To make our list of the best performing energy ETFs in 2023, we ranked all energy ETFs trading on U.S. exchanges by their year to date total returns. The top performing 2023 energy ETFs are as follows.
Best Performing Energy ETFs in 2023
10. Global X MLP ETF (NYSE:MLPA)
Year to date returns: 14.68%
Global X MLP ETF (NYSE:MLPA) is an ETF that invests in oil companies that are called MLPs. These are special entities that pass on their tax burden to investors. This particular ETF is part of the Global X Funds fund family and it was set up in 2012. The Global X MLP ETF (NYSE:MLPA) has $1.41 billion in net assets, and some of its top stock picks are Enterprise Products Partners L.P. (NYSE:EPD), Energy Transfer LP (NYSE:ET), and MPLX LP (NYSE:MPLX).
Along with ETRACS Quarterly Pay 1.5X Leveraged Alerian MLP Index ETN (NYSE:MLPR), VanEck Uranium+Nuclear Energy ETF (NYSE:NLR), and JPMorgan Alerian MLP Index ETN (NYSE:AMJ), Global X MLP ETF (NYSE:MLPA) is a top performing energy ETF in 2023.
9. Invesco Dynamic Oil & Gas Services ETF (NYSE:PXJ)
Year to date returns: 14.95%
Invesco Dynamic Oil & Gas Services ETF (NYSE:PXJ) is part of the Invesco fund family. It was set up in 2005 and has net assets of $81.56 million. The ETF invests in American oil companies that are engaged in exploration and production operations. Its benchmark index is the Dynamic Oil Services Intellidex Index.
8. SPDR MSCI USA Climate Paris Aligned ETF (NASDAQ:NZUS)
Year to date returns: 17.63%
The SPDR MSCI USA Climate Paris Aligned ETF (NASDAQ:NZUS) is part of the SPDR State Street Global Advisors fund family. Set up in 2022, it has net assets of $96 million. The ETF tracks the MSCI USA Climate Paris Alligned Stock index, which covers stocks that are believed to play a crucial role in reducing global emissions.
7. V-Shares MSCI World ESG Materiality and Carbon Transition ETF (BATS:VMAT)
Year to date returns: 17.82%
The V-Shares MSCI World ESG Materiality and Carbon Transition ETF (BATS:VMAT) is part of the V-Shares fund family. In terms of net assets, it is one of the smallest ETFs on our list since the fund’s net assets are currently worth $2.54 million. The fund was set up in 2022, also making it one of the youngest funds on our list of the best performing energy ETFs in 2023. Additionally, as opposed to some other energy ETFs discussed, the V-Shares MSCI World ESG Materiality and Carbon Transition ETF (BATS:VMAT) also bases its selection criteria on corporate governance factors.
6. InfraCap MLP ETF (NYSE:AMZA)
Year to date returns: 17.70%
The InfraCap MLP ETF (NYSE:AMZA) is the second MLP ETF on our list. It is also larger than some other top performing energy ETFs in 2023, due to its net assets of $326 million. The InfraCap MLP ETF (NYSE:AMZA) is part of the Virtus fund family, and it was set up in 2014. It joins VanEck Uranium+Nuclear Energy ETF (NYSE:NLR), ETRACS Quarterly Pay 1.5X Leveraged Alerian MLP Index ETN (NYSE:MLPR), and JPMorgan Alerian MLP Index ETN (NYSE:AMJ) in our list of this year’s best performing ETFs.
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Disclosure: None. 10 Best Performing Energy ETFs in 2023 is originally published on Insider Monkey.