Oil exchange-traded funds (ETFs) follow the price of oil as a commodity and provide direct access to the market. Investing in funds that possess a portfolio of oil stocks is not the same as this strategy. Investing in the oil sector has the potential to yield substantial gains, but the dangers remain high due to the COVID-19 epidemic and the resulting massive economic disruption around the world.
Oil prices have a history of making fast, dramatic swings up and down. Oil ETFs allow investors to acquire exposure to price movements without having to buy and store real commodities or deal with the complexity of investing in oil futures contracts.
What is the best oil ETF?
A word of caution: While the S&P energy sector index is a solid overall predictor, it isn’t a perfect match because it contains mostbut not alloil and gas businesses.
The First Trust Natural Gas ETF has been the best-performing oil and gas ETF over the last year (FCG).
Below, we look at the top three oil and gas exchange-traded funds. The performance data in this section are as of November 24, 2021, and all other figures are as of November 24, 2021.
What is the most popular oil ETF?
Oil ETFs have $3.94 billion in assets under management, with 11 ETFs trading on US exchanges. The cost-to-income ratio is 0.77 percent on average. ETFs that invest in oil are available in the following asset classes:
With $2.41 billion in assets, the United States Oil Fund LP USO is the largest Oil ETF. UCO was the best-performing Oil ETF in the previous year, with a return of 139.26%. On 04/25/17, the Credit Suisse X-Links Crude Oil Shares Covered Call ETN USOI became the most recent ETF in the Oil space.
What is the best way to invest in oil stocks?
You can invest in oil commodities in a variety of ways. Oil can also be purchased by the barrel.
Crude oil is traded as light sweet crude oil futures contracts on the New York Mercantile Exchange and other commodities markets across the world. Futures contracts are agreements to provide a specific quantity of a commodity at a specific price and on a specific date in the future.
Oil options are a different way to purchase oil. The buyer or seller of options contracts has the option to swap oil at a later period. You’ll need to trade futures or options on oil on a commodities market if you want to acquire them directly.
The most frequent approach for the average person to invest in oil is to purchase oil ETF shares.
Finally, indirectly investing in oil through the ownership of several oil firms is an option.
Is there an ETF for crude oil?
- Over the last year, oil prices have outperformed the larger stock market.
- DBO, BNO, and OILK are the oil exchange-traded funds (ETFs) with the best one-year trailing total return.
- Futures contracts for West Texas Intermediate (WTI) light sweet crude oil are the top holdings of the first and third ETFs, while futures contracts for Brent Crude Oil are the top holding of the second.
How does an oil ETF function?
Before going in and buying an oil ETF, investors need be aware of a few essential aspects. The first is that oil ETFs perform poorly in terms of tracking the price of crude oil. How is it possible? Oil ETFs are mutual funds that invest in oil futures contracts. However, because oil futures contracts expire, the ETF must actively shift from the expiring contract to the next contract, a process known as “rolling,” in order to retain the fund’s value.
This may not appear to be a huge matter at first glance, but the problem for ETF investors is that two futures contracts are rarely priced the same.
When future contracts are priced higher than current contracts, a phenomenon known as contango, the ETF holds fewer contracts than it did before the roll. An example can be found in the table below.
Oil prices are currently in a downward spiral, putting a damper on investment performance.
Which Canadian oil ETF is the best?
When I first started investing in 2010, I was enamored with Canadian dividend-paying stocks, and this strategy led me to purchase shares in a number of oil and gas firms, including blue-chip stocks like Canadian Natural Resources and Suncor. Fast forward to 2015, and those equities have lost more than 30% of their value since my initial purchase.
I eventually sold those stocks, as well as the remainder of my individual equities, and switched to index investing through ETFs. Individual oil equities, on the other hand, could provide significant value to savvy investors trying to profit from a prospective oil market resurgence.
Invest in Individual Oil Stocks
Investors seeking a high yield look for stocks that offer a high dividend, and three oil stocks fit the bill:
The difficulty with looking for yield is that dividends are frequently suspended, reduced, or canceled during difficult economic times. A classic value screen known as the price-to-book ratio where a low ratio is considered as advantageous may be a better option for investors looking for bargain. There are three new stocks to consider:
The three stocks have one thing in common: they’ve all dropped more than 44% in the past year. However, if the market has unfairly penalized these three oil businesses, investors looking to profit from a potential recovery may discover significant value here.
Pro Tip: Buying individual stocks through a discount brokerage is the best way to proceed, and if you don’t want to pay high trading costs every time you buy and sell, Questrade is one of our top online brokerage picks.
Invest in Oil ETFs
Individual stock selection can be dangerous, therefore an oil ETF could be a better and more diversified way to invest in oil.
An exchange-traded fund (ETF) is a collection of individual stocks in a specific industry, country, or region. They provide diversification to investors at a low cost. It reduces the danger of investing in a single stock, which could lose value or possibly go out of business.
Here are the top oil ETFs trading in Canada:
- iShares S&P/TSX Capped Energy Index ETF XEG iShares S&P/TSX Capped Energy Index ETF XEG iShares S&P This ETF manages more than $592 million in net assets and contains 22 firms in the Canadian oil sector. As of this writing (May 15), the ETF is trading at only $4.95, reflecting an almost 50% drop in price over the previous year. The ETF’s management expense ratio (MER) is 0.61 percent, and it provides a juicy 5.65 percent dividend yield.
- ZEO BMO Equal Weight Oil & Gas Index ETF Only 11 Canadian large-cap oil and gas stocks are held by this ETF. It employs a “equal weight” strategy, which means that each company represents an equal percentage of the overall portfolio. This differs from a market cap-weighted method (as used by XEG), in which the larger companies account for a larger percentage of the portfolio. ZEO has $123 million in assets under management, has a 0.61 percent MER, and pays a 6.10 percent dividend yield.
- Horizons S&amp The S&P/TSX Capped Energy index, which measures 22 Canadian energy companies, is tracked by this ETF. It manages $17 million in assets and has a return on investment (ROI) of 0.28 percent. HXE has the advantage of having a unique corporate class structure that does not transfer taxable distributions on to shareholders, making it a good fit for taxable accounts.
Trade Commodities or ETFs
Oil futures (commodities) and other ETFs that track global oil market prices are also available to investors. Investors should be aware that some of the more exotic leveraged ETFs might swiftly land them in hot water.
Horizons offers a variety of leveraged, inverse, and inverse leveraged exchange-traded funds (ETFs) that track various equities and commodity indices. They’re geared at experienced investors who want to increase the risk in their portfolio, but to trade these products, you’d have to be insane.
- HEU BETAPRO S&P/TSX Capped Energy 2x Daily Bull ETF BETAPRO S&P/TSX Capped Energy 2x Daily Bull ETF BETAPRO S&P/TSX Capped This ETF aims daily investment returns that are two times (200 percent) the S&P/TSX Capped Energy Index’s daily performance. It employs leverage, which can magnify both positive and negative results. As oil prices plunged, the year-to-date performance was -81 percent.
- HED BETAPRO S&P/TSX Capped Energy 2x Daily Bear ETF BETAPRO S&P/TSX Capped Energy 2x Daily Bear ETF BETAPRO S&P/TSX Capped This ETF seeks daily investment returns that are two times (200 percent) the inverse (reverse) of the S&P/TSX Capped Energy Index’s daily performance. It uses leverage, but because its outcomes aren’t exactly aligned with the market, its year-to-date performance is only up 35%.
- Horizons NYMEX Crude Oil ETF HUC is an exchange-traded fund that tracks the price of crude oil on the New York Mercantile Exchange This exchange-traded fund (ETF) tracks the performance of the NYMEX light sweet crude oil futures contract.
Is there an oil ETF from Vanguard?
Crude oil ETFs, like many other exchange-traded funds (ETFs), are an investment alternative for those who desire exposure to the oil sector without the complexities and hazards associated with oil futures. Crude oil exchange-traded funds (ETFs) provide investors with exposure to a variety of aspects of the sector while being professionally managed.
The Vanguard Energy ETF (VDE) provides investors with a broad view of the oil industry. Continue reading to learn more about this ETF’s top holdings, returns, and fees.
How do you keep tabs on oil prices?
Yahoo! Finance has a live feed of current crude oil prices. The price of a barrel of crude oil is monitored and updated on a daily basis. The time of the last trade, the % rise or reduction from the last deal, and the current day’s price movement are all included in the current price. Go to Yahoo! Finance (see Resources) and click on the “Investing” page to see crude oil prices. Click “Energy” under “Commodities.” Along with heating oil and natural gas, crude oil is categorized as a commodity.
Is there a 3X oil ETF available?
Leveraged 3X Oil ETFs track futures prices on a variety of oil-based natural resources. Crude oil (Brent and WTI), heating oil, and gasoline are among them. The ETFs use leverage to achieve three times the daily or monthly return on the underlying oil commodity prices.