The Best ETFs to Play the Energy Market Now

While analysts are busy explaining the impact on oil prices of the November 8 American election, China’s zero-COVID policy in the future, inflation and the number of production and inventories, exchange-traded funds (ETFs) are a good way to play high commodity prices in the middle of a . global energy crisis and conflict in Europe. Most, but not all, passive ETFs, and passive investments have been tapped to continue outperforming his more active brothers Amid the current period of heightened uncertainty.

The ETF boom has taken financial markets by storm as exchange-traded funds command a larger share of investment dollars globally — even as investors continue to flock to passive funds and shun actively managed funds.

The following funds can help you hedge against inflation and geopolitical uncertainty.

Energy Select Sector SPDR ETF

AUM: $42.8B

Cost ratio: 0.11%

Dividend Yield (FWD): 3.45%

YTD Return: 54.7%

With more than $40 billion in assets under management (AUM), it Energy Select Sector SPDR ETF (NYSEARCA:XLE) is the largest dedicated energy fund. It is also the most liquid and the cheapest, with an expense ratio of just 0.11%.

XLE tracks the price and performance of the company’s production Energy Select Sector Index. This index offers investors broad exposure to companies in the oil, gas and energy industries.

Related: Kazakhstan Prepares To Increase Oil Exports

Another key attraction: the ETF has a respectable 3.45% dividend yield (FWD).

One of its shortcomings though is that the ETF holds only 26 stocks in its portfolio, with ExxonMobil (NYSE: XOM) and Chevron Corp.(NYSE: CVX) is over-represented, accounting for more than 40% of the entire portfolio value.

Vanguard Energy ETF

AUM: $11.0B

Load Ratio: 0.10%

Dividend Yield (FWD): 3.23%

YTD Return: 54.9%

Vanguard funds are traditionally known for undercutting the competition in fees, and Vanguard Energy ETF (NYSEARCA: VDE) stay true to this ethos by offering the lowest prices in the sector.

With 110 shares – even with significantly less AUM than XLE – VDE is better diversified than XLE, although XOM and CVX still play an outsized role with weightings of 22.4% and 16.2%, respectively.

VDE tracks performance MSCI US Investable Market Index (IMI) / energy 25/50The index consists of stocks of large- and mid-cap US energy companies.

United States Oil ETF, LP

AUM: $2.1B

Expense ratio: 0.83%

Dividend Yield (FWD): N/A

YTD Return: 30.7%

The United States Oil ETF, LP (NYSEARCA: USO) seeks to track daily changes in the percentage of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma. USO invests mainly in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heat oil, gasoline, natural gas, and other petroleum-based fuels.

Back in April 2020, USO gained notoriety after being the focus of the worst oil price crash in history. WTI futures rose a whopping 310% to minus $38.45/barrel marking the first time futures for US crude prices were negative – and making the seemingly impossible ‘negative oil’ forecast suddenly appear.

A negative oil price is an absurd notion that basically means producers will pay traders to take oil off their hands. USO, the country’s largest long-only crude oil exchange-traded fund (ETF) should be blamed for the debacle because it owns 25% of the outstanding volume of the May WTI oil futures contract.

Thankfully, a repeat of this type of mayhem is unlikely after USO moved 20% of the WTI contract it holds to later months in a bid to lower volatility. And there is no possibility of negative oil now.

Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2x Shares ETF

AUM: $800.6M

Load Ratio: 0.95%

Dividend Yield (FWD): 0.39%

YTD Return: 84.3%

The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2x Share (NYSEARCA: GUSH ) is an exchange traded fund launched by Direxion Investments in May 2015.

GUSH invests in the public equity market in the United States. The fund uses derivatives such as futures and swaps to create its portfolio and invests in the growth and value of company stocks in different market capitalizations. It seeks to track 2x the daily performance of S&P Oil & Gas Exploration & Production Select Industry Index (SPSIOP). As a leveraged fund, GUSH is prone to daily wild swings especially when oil prices fall.

Inverse ETFs

Inverse and inverse-leveraged ETFs create an inverse short position or a leveraged inverse short position in the underlying index through the use of swaps, options, futures contracts and other financial instruments. Thanks to their compounding effect, investors can enjoy high returns over short periods of time provided the trend prevails.

short sellers now resorted to trading inverse ETFs that bet against S&P 500 such as ProShares UltraPro Short S&P500 (SPX), UltraPro Short Russell2000 (party), Stock Dow Jones Internet Bear 3X Daily ( Web), ProShares UltraPro Short QQQ (QQQ), and ProShares UltraPro Short Dow30 (Dow). All these inverse ETFs are in the green, with WEBS having really outperformed with a 201.7% YTD return.

By Alex Kimani for Oilprice.com

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