In this article, we discuss 12 best energy ETFs to invest in. If you want to see the top energy ETFs sorted based on returns, head directly to 5 Best Energy ETFs: Top Oil, Gas and Renewable Energy Funds.
Clean energy investment has received a significant boost due to the COVID-19 recovery and the global energy crisis. The International Energy Agency estimates that around $2.8 trillion will be invested in energy in 2023. More than $1.7 trillion is going to clean energy, with solar being the top performer, and low-emissions power is expected to make up almost 90% of total investment in electricity generation. The ratio of spending on clean energy versus fossil fuels has shifted to $1.7 spent on clean energy for every $1 spent on fossil fuels, marking a notable change from the 1:1 ratio five years ago. This momentum is driven by renewable power and electric vehicles, with contributions from batteries, heat pumps, and nuclear power as well. More than $1 trillion is being allocated to fossil fuel supply and power, with approximately 15% directed towards coal and the remaining portion reserved for oil and gas.
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The Economist Intelligence Unit (EIU) predicts that global energy consumption will experience a modest growth of 1.3% in 2023 due to a slowdown in the global economy. High energy prices and economic deceleration will lead to this sluggish consumption growth, marking the second consecutive year of this trend. Additionally, there may be a decrease in energy supplies in 2023, as OPEC+ members consider reducing production to maintain stable oil prices. Russia’s oil and gas output is also expected to decline further due to EU sanctions on oil, while fears of a global recession are putting downward pressure on oil prices. Furthermore, global natural gas consumption is forecasted to remain flat in 2023, with declines in Europe offsetting gains in other regions. Coal consumption will see marginal growth for the third consecutive year, driven by increased policy focus on energy security. Oil consumption, on the other hand, will grow by 1.4%, largely supported by Asian demand, but it is expected to contract by 1% in Europe due to slower economic activity and the EU’s embargo on Russian oil imports. In contrast to fossil fuels, solar and wind energy consumption is projected to experience a notable increase of 11% in 2023 due to the initiation of new projects. The addition of solar and wind capacity is expected to remain robust over the forecast period of 2022-2031, leading to renewable energy consumption growing at an average annual rate of 10% in the next decade. Asia, particularly China, India, Japan, and South Korea, will continue to be the largest market for renewable energy investment and development.
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In 2023, amid the ongoing energy crisis, there is a crucial need to facilitate a fair energy transition. UNDP identified three trends that will influence this transformation in energy systems. Firstly, due to inflation, the energy crisis, and rising interest rates, more than 50 countries are at risk of bankruptcy without urgent assistance from developed nations, resulting in potential loss of electricity access for millions and increasing food insecurity. Secondly, on a positive note, the global energy crisis has sparked significant momentum in renewables. The International Energy Agency predicts that in the next five years, the world will add as much renewable power as it did in the past 20 years, almost doubling the total capacity of renewable power and surpassing coal as the leading electricity generation source globally by early 2025. Despite this growth, there are concerns about the simultaneous resurgence of fossil fuel use. Lastly, there is an increasing recognition for a ‘just transition’ to a low-carbon economy, evident at COP27 with various announcements and partnerships. South Africa, Indonesia, Vietnam, India, and Senegal are actively involved in Just Energy Transition Partnerships. The International Institute for Sustainable Development highlighted the potential of these partnerships to achieve faster progress in energy transition compared to UN climate talks where oil and gas-producing countries could potentially hinder agreements.
Some of the best energy stocks to invest in include First Solar, Inc. (NASDAQ:FSLR), Enphase Energy, Inc. (NASDAQ:ENPH), and Chevron Corporation (NYSE:CVX). However, investors can easily access a portfolio of oil, gas, and renewable energy stocks by investing in energy ETFs. In this article, we discuss 12 best energy ETFs to buy.
Our Methodology
We chose ETFs that offer exposure to large-, mid- and small-cap energy and renewables stocks to create a well-rounded list of the popular funds listed on US exchanges. We have also discussed the top holdings of the ETFs to offer better insight to potential investors. These energy ETFs have amassed significant gains in the last 5 years. The list is ranked in ascending order of the 5-Year performance as of July 28, 2023.
Best Energy ETFs: Top Oil, Gas and Renewable Energy Funds
12. Vanguard Energy Index Fund (NYSE:VDE)
5-Year Performance as of July 28: 14.70%
Vanguard Energy Index Fund (NYSE:VDE) aims to replicate the performance of the U.S. Investable Market Energy Index, a benchmark index that gauges the investment returns of energy sector stocks. It is managed passively, employing a full-replication approach when feasible, and a sampling strategy when regulatory restrictions apply. The ETF consists of companies engaged in exploring and producing energy products like oil, natural gas, and coal. Vanguard Energy Index Fund (NYSE:VDE) was established on September 23, 2004. It offers an expense ratio of 0.10% and the 30-day SEC yield as of June 30 remains 3.29%.
American supermajor Exxon Mobil Corporation (NYSE:XOM) is the largest holding of Vanguard Energy Index Fund (NYSE:VDE). Although Exxon failed to meet Wall Street estimates for revenue and EPS for Q2 2023, the results were positively influenced by increased production in the Permian basin, which set a new quarterly record of 622,000 barrels of boe/day and is projected to grow by 10% this year. Additionally, in Guyana, Exxon Mobil Corporation (NYSE:XOM) intends to boost production by 5% to reach 400,000 boe/day by the year’s end. At the end of Q2, the company reported having $29.6 billion in cash, slightly lower than its previous record of $32.7 billion at the end of Q1 2023.
In addition to First Solar, Inc. (NASDAQ:FSLR), Enphase Energy, Inc. (NASDAQ:ENPH), and Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM) is one of the top energy stocks to watch.
Here is what First Eagle Investments said about Exxon Mobil Corporation (NYSE:XOM) in its Q2 2022 investor letter:
“Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industry wide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.”
11. First Trust Nasdaq Oil & Gas ETF (NASDAQ:FTXN)
5-Year Performance as of July 28: 16.21%
First Trust Nasdaq Oil & Gas ETF (NASDAQ:FTXN)’s main goal is to achieve investment results that closely match the price and yield of the Nasdaq US Smart Oil & Gas Index. First Trust Nasdaq Oil & Gas ETF (NASDAQ:FTXN)’s portfolio consists of 43 stocks. As of June 30, the fund’s 30-day SEC yield stands at 2.76%. The expense ratio has remained 0.60% consistently since August 1, 2022. First Trust Nasdaq Oil & Gas ETF (NASDAQ:FTXN) is one of the best energy ETFs to monitor.
ConocoPhillips (NYSE:COP) is the biggest stock in First Trust Nasdaq Oil & Gas ETF (NASDAQ:FTXN)’s portfolio. ConocoPhillips (NYSE:COP) is an energy company that engages in the exploration, production, transportation, and marketing of crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids. According to Insider Monkey’s first quarter database, ConocoPhillips (NYSE:COP) was part of 72 hedge fund portfolios, compared to 67 in the prior quarter.
Oakmark Select Fund made the following comment about ConocoPhillips (NYSE:COP) in its second quarter 2023 investor letter:
“ConocoPhillips (NYSE:COP) is one of the largest and most efficient exploration and production companies in the country. The company has an extensive resource base of high-quality drilling inventory in the U.S. and various international locations as well as a growing liquified natural gas business. In our view, the depth and quality of ConocoPhillips’s inventory is a competitive differentiator that is not fully captured in today’s share price. Over the next 10 years, we believe ConocoPhillips will be able to return more than 100% of its current market cap to shareholders via dividends and share repurchases while growing its production at a mid-single-digit annual pace. We believe ConocoPhillips is also among the best managed companies in the oil and gas industry and we are impressed by its history of accretive capital allocation under CEO Ryan Lance. The stock has meaningfully underperformed the broader market year-to-date and is an attractive addition to our portfolio.”
10. Invesco S&P 500® Equal Weight Energy ETF (NYSE:RSPG)
5-Year Performance as of July 28: 20.64%
Invesco S&P 500® Equal Weight Energy ETF (NYSE:RSPG) tracks the S&P 500 Equal Weight Energy Plus Index, which evenly distributes the weight of stocks in the energy sector from the S&P 500 Index. This sector comprises companies involved in the exploration, production, refining, marketing, storage, and transportation of oil, gas, coal, and consumable fuels, as well as those providing equipment and services for the oil and gas industry. Both the ETF and the index undergo quarterly rebalancing. Invesco S&P 500® Equal Weight Energy ETF (NYSE:RSPG) was established in 2006 and it offers an expense ratio of 0.40%, along with a 30-day SEC yield of 3.24% as of July 27.
The largest holding of Invesco S&P 500® Equal Weight Energy ETF (NYSE:RSPG) is Schlumberger Limited (NYSE:SLB), a company that offers technology solutions for the energy industry worldwide. On July 21, Schlumberger Limited (NYSE:SLB) declared a quarterly dividend of $0.25 per share, in line with previous. The dividend is payable on October 12, to shareholders of record on September 6.
VGI Partners made the following comment about Schlumberger Limited (NYSE:SLB) in its 2022 annual investor letter:
“In addition to defense, we have focused our efforts on other new sectors where we see structural growth, including energy and medical technology. The long-term outlook for energy looks highly attractive given many years of under-investment and more recently amplified by ESG constraints and corporate discipline. Although we reviewed commodity owners (where we leveraged the expertise of the Regal resources team), we focused our efforts on the second derivative – the oil service companies. These are the picks-and-shovels of the industry and arguably the highest-quality way to gain exposure. As a result, we invested in Schlumberger Limited (NYSE:SLB) earlier this year and grew this to a circa 8% weight during the year (now circa 3%)”
9. SmartETFs Sustainable Energy II ETF (NYSE:SOLR)
5-Year Performance as of July 28: 22.55%
SmartETFs Sustainable Energy II ETF (NYSE:SOLR) is an exchange traded fund that is actively managed and invests in stocks with a specific focus on alternative or renewable energy. The fund follows an approximately equal-weighted approach for its holdings. SmartETFs Sustainable Energy II ETF (NYSE:SOLR) was founded in November 2020 and has assets under management of $5.68 million. The expense ratio for SmartETFs Sustainable Energy II ETF (NYSE:SOLR) stands at 0.79% and the open-ended fund comprises a portfolio of 30 stocks. It is one of the best energy ETFs to invest in.
ON Semiconductor Corporation (NASDAQ:ON) is one of the top stocks in SmartETFs Sustainable Energy II ETF (NYSE:SOLR)’s portfolio. ON Semiconductor Corporation (NASDAQ:ON) offers intelligent power and sensing solutions worldwide. The company’s operations are divided into three main segments – Power Solutions Group, Advanced Solutions Group, and Intelligent Sensing Group. On July 26, the company entered into long-term supply agreements with solar inverter manufacturers, amounting to $1.95 billion. ON Semiconductor Corporation (NASDAQ:ON) has successfully inked these agreements with eight out of the ten leading solar inverter suppliers.
Aristotle Atlantic Focus Growth Strategy made the following comment about ON Semiconductor Corporation (NASDAQ:ON) in its Q1 2023 investor letter:
“ON Semiconductor Corporation (NASDAQ:ON) supplies analog, standard logic and discrete semiconductors for data and power management. The company provides industry leading intelligent sensing and power solutions to help its customers solve the most challenging problems and create cutting edge products for a better future. Its extensive portfolio of sensors, power management, connectivity, custom and SoC, analog, logic, timing and discrete devices helps customers efficiently solve design challenges in advanced electronic systems and products. ON Semiconductor’s devices perform power and signal control, and interface functions appear in a wide range of end-user markets including automotive, communications, computing, consumer, medical, industrial, networking, telecom and aerospace/defense. Most of ON Semiconductor’s sales come from the Asia/Pacific region.
We see ON Semiconductor attractively valued and leveraged to attractive areas of end-market growth over the next few years. The company is gaining both semiconductor content and seeing better pricing tailwinds due to demand exceeding supply and more complex semiconductor content. We see these trends continuing to provide 2023 tailwinds and fully expect strong growth rates in electric vehicle penetration over the next five years.”
8. iShares U.S. Oil & Gas Exploration & Production ETF (CBOE:IEO)
5-Year Performance as of July 28: 25.95%
iShares U.S. Oil & Gas Exploration & Production ETF (CBOE:IEO) aims to mirror the performance of the Dow Jones U.S. Select Oil Exploration & Production Index, which consists of stocks from the oil and gas exploration and production industry. This ETF was launched on May 01, 2006. As of June 30, 2023, it had a 30-day SEC yield of 3.73% and an expense ratio of 0.39%. iShares U.S. Oil & Gas Exploration & Production ETF (CBOE:IEO) is one of the best energy ETFs to invest in.
A prominent holding of iShares U.S. Oil & Gas Exploration & Production ETF (CBOE:IEO) is EOG Resources, Inc. (NYSE:EOG), a company engaged in the exploration, development, production, and marketing of crude oil, natural gas, and natural gas liquids. The company’s main producing regions are in New Mexico, Texas, and the Republic of Trinidad and Tobago. According to Insider Monkey’s first quarter database, 41 hedge funds were bullish on EOG Resources, Inc. (NYSE:EOG), with Harris Associates holding the largest stake comprising 7.2 million shares worth $828 million.
Artisan Value Fund made the following comment about EOG Resources, Inc. (NYSE:EOG) in its Q4 2022 investor letter:
“Our top three contributors for the full year were two energy holdings—Schlumberger and EOG Resources, Inc. (NYSE:EOG)—and health care company Merck. EOG is a US shale-focused E&P company. The current supportive commodity price environment and EOG’s continuing to deliver on its production goals and capex plans have led investors to bid up shares. Its commitment to return excess capital to shareholders via regular and special dividends is also highly appealing, particularly in a period of rising interest rates. The company has proven its ability to create economic value for shareholders, even over the past decade that included the toughest energy commodity environment of the last 30+ years. The company’s strong balance sheet enabled it to increase production capabilities during the downturn. EOG has a low-cost production position with a strong reserve base, giving it an advantage versus peers. Further, EOG’s management focuses on return on invested capital and cash flow generation, distinguishing it from most of the company’s competitors who prioritize growth over profitability.”
7. Invesco DB Energy Fund (NYSE:DBE)
5-Year Performance as of July 28: 33.13%
Invesco DB Energy Fund (NYSE:DBE) aims to mirror the performance of the DBIQ Optimum Yield Energy Index Excess Return, which tracks changes in the level of futures contracts on major energy commodities, including light sweet crude oil, heating oil, Brent crude oil, RBOB gasoline, and natural gas. The fund, established in 2007, is designed as a cost-effective and convenient option for investors seeking exposure to commodity futures. It comes with an expense ratio of 0.77%. Invesco DB Energy Fund (NYSE:DBE) is one of the best energy ETFs to watch.
6. Invesco WilderHill Clean Energy ETF (NYSE:PBW)
5-Year Performance as of July 28: 64.96%
Invesco WilderHill Clean Energy ETF (NYSE:PBW) tracks the investment results of the WilderHill Clean Energy Index, which consists of publicly traded companies in the United States specializing in clean energy and conservation. Currently, the ETF holds a portfolio of 76 stocks and comes with an expense ratio of 0.62%. Its inception dates back to March 3, 2005. Invesco WilderHill Clean Energy ETF (NYSE:PBW) is one of the best energy ETFs to invest in.
Rivian Automotive, Inc. (NASDAQ:RIVN), an American manufacturer of electric vehicles, is one of the largest holdings of Invesco WilderHill Clean Energy ETF (NYSE:PBW). Rivian Automotive, Inc. (NASDAQ:RIVN) produced 13,992 vehicles and delivered 12,640 vehicles during Q2 at its manufacturing facility in Illinois. The delivery numbers exceeded expectations by 11,300 units, and the company remains confident in achieving its annual production target of 50,000 vehicles.
Like First Solar, Inc. (NASDAQ:FSLR), Enphase Energy, Inc. (NASDAQ:ENPH), and Chevron Corporation (NYSE:CVX), Rivian Automotive, Inc. (NASDAQ:RIVN) is one of the best stocks to watch in the energy and renewables space.
Baron Opportunity Fund made the following comment about Rivian Automotive, Inc. (NASDAQ:RIVN) in its Q1 2023 investor letter:
“Shares of Rivian Automotive, Inc. (NASDAQ:RIVN), a U.S.-based EV manufacturer, fell during the quarter. Despite seven-fold growth in its monthly production rate between late 2021 and the end of 2022, production guidance for 2023 missed analyst forecasts because of supply-chain constraints, principally semiconductors. Moreover, notwithstanding an attractive long-term opportunity and favorable product reviews by customers and industry experts, investors remain concerned about liquidity risks as the company burns cash during its early production stage while unit economics remain challenged. Vehicle sales through the end of 2023 will be at Rivian’s legacy vehicle pricing, which was set before inflationary and supply-chain pressures emerged last year across the entire automotive space. New pricing and improved unit economics should be realized in 2024, and Rivian is slated to launch its R2 vehicle line in 2026. We have adjusted Rivian to a smaller position in our portfolio. Despite near-term macro and execution risks, we do believe that Rivian’s current valuation offers attractive long-term returns. During the year, we will remain focused on Rivian’s production ramp, vehicle demand, unit-level economics, and cost controls as well as progress on its R2 vehicle platform, its next-gen Enduro electric motor, and its battery system advancements.”
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Disclosure: None. 12 Best Energy ETFs: Top Oil, Gas and Renewable Energy Funds is originally published on Insider Monkey.
