ETF Spotlight Series: Finding the Best Oil and Gas ETF

XOP: 

• Full name: SPDR S&P Oil & Gas Exploration & Production ETF
• Size: $3.7B in assets under management
• Number of holdings: 61
• Fees: 0.35% (average ETF cost is 0.16%)
• Volatility: high (5-yr beta is 2.06)
• 5-yr return: -27% DCA: 47%
• Summary: Unlike other ETFs in this list, XOP uses equal-weight methodology. For you, this means you will have more exposure to small and mid-cap oil and gas stocks.

VDE:

• Full name: Vanguard Energy ETF
• Size: $7.2B in assets under management
• Number of holdings: 112
• Fees: 0.10% 
• Volatility: moderate (5-yr beta is 1.51)
• 5-yr return: 3.06% DCA: 60%
• Summary: If you are looking for very high diversification and minimal fees, VDE could be a good choice. With over 100 stocks in its portfolio, VDE is a passively managed ETF that “includes stocks of companies involved in the exploration and production of energy products such as oil, natural gas, and coal.”

XLE:

• Full name: Energy Select Sector SPDR Fund
• Size: $35B in assets under management
• Number of holdings: 25
• Fees: 0.10% 
• Volatility: moderate (5-yr beta is 1.46)
• 5-yr return: 2.45% DCA: 61%
• Summary: If you tend to follow the crowd when it comes to investing, then XLE is for you. It's the most widely embraced energy ETF, managing nearly $35 billion in assets. With a portfolio consisting of only 25 energy stocks, XLE offers a concentrated selection of major, reliable, and US-based companies in the oil and gas industry.

IEO:

• Full name: iShares U.S. Oil & Gas Exploration & Production
• Size: $644M in assets under management
• Number of holdings: 49
• Fees: 0.39% 
• Volatility: moderate (5-yr beta is 1.76)
• 5-yr return: 11.43% DCA: 71%
• Summary: Among the oil and gas ETFs featured in this list, this particular one carries the highest expense ratio of 0.39%. However, it also boasts the strongest performance, delivering an impressive 5-year dollar-cost-averaging return of 71%.

Share’s Oil & Gas:

• Number of holdings: 14
• Fees: free 
• Volatility: moderate (5-yr beta is 1.52)
• 5-yr return: N/A DCA: 64%
• Summary: If you are looking for a balance between return and risk, Share’s Oil & Gas strategy stands out. Share’s very own oil and gas strategy is unique in that there is no fee, and it has the fewest number of holdings. Share believes that many of the oil and gas ETFs are over diversified. Over-diversification can result in diminished profits and may not necessarily reduce your overall risk. Share’s concentrated, equal-weighting approach over 5 years creates a relatively equal distribution among 15 stocks, with all stocks representing between 5-10% of the overall portfolio. This means that each member of the strategy has an equal chance at providing returns (either positive, or negative).

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How to invest in oil & gas ETFs:

Due to the high volatility of the oil prices, a method to consider when investing in an oil and gas ETF is through dollar cost averaging (DCA). DCA involves purchasing smaller amounts at consistent intervals, irrespective of the price. This strategy can help you achieve a favorable average price over time. Consequently, the returns obtained through DCA for the aforementioned ETFs are notably higher compared to traditional investment approaches.