Luisa Rollenhagen is a journalist and investor who writes about financial planning for Wealthsimple. She is a past winner of the David James Burrell Prize for journalistic achievement and her work has been published in GQ Magazine and BuzzFeed. Luisa earned her M.A. in Journalism at New York University and is now based in Berlin, Germany.
If you want to have a diversified portfolio, then stock from energy companies will most likely play a part in your investment strategy. The energy sector is one of the most important (and largest) fields in both domestic and global markets, so it makes sense that investors focused on growing their investments and maintaining a diversified portfolio want a piece of that pie.
The energy sector is large. There’s clean energy, there’s coal, there’s renewable energies, oil, natural gas, nuclear energy. Everyone around the globe needs energy—whether that be to charge your laptop, light the streets of a city, or keep a hospital running—the actual price of commodities within the energy sector can be volatile.Wealthsimple Invest is automated way to grow your money like the worlds most sophisticated investors. Get started and we'll build you a personalized investment portfolio in a matter of minutes.
Geopolitical events and shifting demands can lower or raise prices, so while investing in energy should be part of your investment strategy, diversification is your primary risk reduction strategy.
Buying whole shares of specific companies may simply be out of your price range, or perhaps you’d really like to invest in various clean energy companies but simply don’t have the budget for it. Enter: The energy ETF. An ETF (exchange traded fund) is an investment fund that lets you buy a large basket of individual stocks or bonds in one purchase. They’re popular because they come with built-in diversification and tend to be cheap, since they’re usually not managed by humans. There are ETFs for almost any sector or industry you could think of, including the energy sector. Energy ETFs are a smart option for investors looking for significant diversification, access to various key players within the energy sector, and low costs.
whether that be an energy ETF or a bond or a mutual fund, is the one that best suits your needs and goals. With that in mind, here are some of the most popular energy ETFs of 2019, listed by decreasing assets under management (AUM), which refers to the total market value of the investments that a financial institution manages on behalf of its clients and itself.
1. Energy Select Sector SPDR ETF (XLE)
With nearly $13.5 billion in AUM, this large fund provides investors with broad exposure to companies in the oil, gas, and consumable fuel, energy equipment and services industries. It’s got all the big players: Exxon Mobil, Chevron, and ConocoPhillips are the fund’s top three holdings. Coupled with a low expense ratio (0.13%), this ETF is a popular choice for investors looking to get a broad exposure to traditional energy sources.
As of writing, the Energy Select Sector SPDR ETF has been trading at $60.83 a share and has registered an average year-to-date return of 8.08%.
2. Vanguard Energy ETF (VDE)
For those of you keen to invest in traditional energy sources but don’t want to spend a lot on fees, the Vanguard Energy ETF is a popular addition to diversified portfolios. As of December 31, 2018, the ETF has $3.7 billion in AUM, and acts as a passively managed fund that includes different-sized companies involved in oil, coal, and natural gas.
As of the writing of this article, the ETF has been trading at $80.18 a share. Keep in mind that the Vanguard Energy ETF is considered to be quite volatile in price, so if you’re considering investing in it, it’s probably best if it only comprises a small percentage of your portfolio. The fund reported a year-to-date return of 6.30%.
3. iShares Global Energy ETF (IXC)
For investors interested in looking beyond the United States, the iShares Global Energy ETF can provide an opportunity to take on a more global approach. The companies incorporated in the fund focus on oil and gas, but include companies from France, the United Kingdom, and Canada in addition to American companies.
Shares are trading for $30.72 as of writing, and the fund has reported a year-to-date return of 6.65%. It has over $875 million in AUM, and with an expense ratio of 0.46% it’s more expensive than other ETFs on this list. But for investors who want to pursue a more global approach while still investing in well-known companies, this ETF can be an appealing choice.
4. VanEck Vectors Oil Services ETF (OIH)
As the name suggests, this ETF deals with oil. More specifically, the fund includes companies that deal with everything surrounding oil—oil equipment, drilling, and exploration. The VanEck Vectors Oil Services ETF has $617.4 million in AUM and focuses primarily on U.S. companies, although it also includes some foreign companies that trade on the U.S. market.
As of this writing, the ETF has been trading at $12.95 a share. The fund mirrors the performance of its underlying index, the Market Vectors U.S. Listed Oil Services 25 Index. It’s also worth noting that the fund is highly concentrated: one-third of the fund is comprised of the two largest companies in the fund, Schulmberger and Halliburton. It’s experienced a one-week return of 13%, but keep in mind that its year-to-date return has been -6.20%.
5. iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
The iShares U.S. Oil and Gas Exploration & Production ETF focuses on U.S. companies that engage in the exploration, production, and distribution of oil and gas. It has over $206 million in AUM, and at 0.42%, its management fees are a little higher than similar funds.
As of writing, the fund has been trading at $51.69 a share and a year-to-date return of 1.39%.
Clean energy ETFs
There are plenty of clean and/or renewable energy ETFs out there, and some of these ETFs have experienced double-digit gains. But don’t get too excited just yet: The clean energy sector is relatively new, so expect some volatility.
1. Invesco Solar ETF (TAN)
With an expense ratio of 0.70%, this is one of the pricier ETFs on this list. But the Invesco Solar ETF is also one of the largest clean energy ETFs on the market. As of writing this article, this ETF is trading for $29.63 a share, and has $456 million AUM.
The fund has also reported year-to-date returns of 59.64%, reflecting the current trend of clean energy ETFs.
2. iShares Global Clean Energy ETF (ICLN)
This popular clean energy ETF includes companies that specifically focus on solar energy and wind turbines. It tracks the S&P Global Clean Energy Index, which is composed of 30 clean and renewable energy stocks from all around the world.
It has about $344 million AUM, and is currently trading at $11.03 per share. The fund has reported 34.49% in year-to-date returns, and has a slightly higher expense ratio at 0.46%.
At the end of the day, investing in the energy sector (in all of its variations) is an important part of a diversified portfolio. But even with rapid growth occurring in the renewable energy sector, it’s important to always remember that you shouldn’t bet everything on one card, especially in a sector as volatile as the energy sector.Get started with Wealthsimple Trade. Sign up today and start building your portfolio with a free stock.
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