Best Oil and Gas ETFs for Q1 2022

Oil and gas exchange-traded funds (ETFs) offer investors more direct and easier access to the often-volatile energy market than many other alternatives. While there is the potential for significant returns by investing in the oil and gas sector, the risks can be high. Oil futures, for example, tend to be volatile and often require a significant initial investment, which excludes many investors. By contrast, oil and gas ETFs offer access to a basket of energy equities, diversifying risk.

While some oil and gas ETFs track futures contracts or commodities prices, the ETFs below are focused solely on stocks.

The universe of oil and gas ETFs that trade in the United States is composed of about 27 ETFs, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The oil and gas sector, as measured by the S&P 500 Energy Index, has outperformed the broader market, posting a total return of 51.6% over the past 12 months compared to the S&P 500’s total return of 31.2%. That’s thanks to soaring oil and gas prices. A special note: While the S&P energy sector index is a good general indicator, it’s not a perfect match because the benchmark includes most—but not all—oil and gas companies.

The best-performing oil and gas ETF, based on performance over the past year, is the First Trust Natural Gas ETF (FCG). We examine the top three oil and gas ETFs below. Performance figures above are as of Nov. 24, 2021, while all other figures throughout are as of Nov 24, 2021.

• Performance Over One-Year: 112.9%
• Expense Ratio: 0.60%
• Annual Dividend Yield: 1.58%
• Three-Month Average Daily Volume: 1,647,361
• Assets Under Management: $476.8 million
• Inception Date: May 8, 2007
• Issuer: First Trust

FCG is a multi-cap blended fund targeting the ISE-Revere Natural Gas Index. The index holds exchange-listed companies that derive a significant portion of revenue from the exploration and production of natural gas.

FCG allocates its investments relatively equally across its top 10 holdings, which account for more than 45% of invested assets. Investors should note that FCG is essentially a leveraged play on underlying natural resources, which makes the ETF vulnerable to significant volatility.

The top holdings of the fund include DCP Midstream LP (DCP), Devon Energy Corp. (DVN), and ConocoPhillips (COP), all of which are energy companies engaged in the exploration and production of natural gas and related products.

• Performance Over One-Year: 108.2%
• Expense Ratio: 0.63%
• Annual Dividend Yield: 1.69%
• Three-Month Average Daily Volume: 122,567
• Assets Under Management: $139.6 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.

Small-cap value stocks make up more than half of the PXE portfolio, followed by mid-cap value stocks. The top holdings include Continental Resources Inc. (CLR), ConocoPhillips (described above), and Pioneer Natural Resources (PXD), all of which are energy companies engaged in the exploration and production of natural gas and related products.

• Performance Over One-Year: 92.1%
• Expense Ratio: 0.60%
• Annual Dividend Yield: 0.36%
• Three-Month Average Daily Volume: 74,571
• Assets Under Management: $99.7 million
• Inception Date: Oct. 26, 2005
• Issuer: Invesco

PXI offers investors the opportunity to buy domestic energy assets by investing in several Big Oil companies. This ETF is taking a long-term investment horizon, and therefore, is suitable for investors rather than traders. Meanwhile, PXI does not display the same concentration as ETFs linked to cap-weighted indexes. Thus, it offers a more balanced way to participate in the U.S. energy sector.

The top holdings of the fund include gas exploration, production, and marketing companies Ovintiv Inc (OVV) and Callon Petroleum Company (CPE), and liquefied gas company Cheniere Energy, Inc. (LNG).

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