Oil Stock ETFs provide you with a wide exposure to the whole energy sector since they are designed to track the performance of a benchmark index composed of stocks of companies engaged in oil & gas production and exploration to refining and distribution. Oil Stock ETFs are great building blocks for your portfolio as they eliminate company specific risks such as an oil spill or hitting a dry well. However, not all ETFs are created equal, certain attributes like management expense ratio (fees) and liquidity should be taken in consideration when picking your ETF. Save money by targeting a fund with a low MER and make sure the ETF is liquid enough that you do not end up buying or selling with a ridiculous spread. Although there are a host of oil stocks ETFs that have appeared in the past 10 years you will quickly notice that only a handful stand out from the crowd. Let’s start by taking a look at the following exchange traded funds:
PSCE – PowerShares S&P SmallCap Energy ETF (NYSE Arca: PSCE)
PSCE 45.71 [-0.6801]
Average Volume: 20083
PSCE was first introduced in 2010; the ETF seeks to track the S&P SmallCap 600 Capped Energy Index which is composed of common stocks of US energy companies engaged in producing, distributing or servicing energy related products. PSCE is best suited for tracking small cap companies which historically have outperformed large caps. PSCE has a nice dividend yield compared to its peers and a low management expense ratio. It is the only ETF providing a pure exposure to small cap energy companies.
WCAT – Thomson Reuters/Jefferies CRB Wildcatters Energy E&P Equity ETF (NYSE Arca: WCAT)
WCAT 39.20 [0.00]
Average Volume: 1844
WCAT first appeared in January of 2010. It is designed to track the TR/J CRB Wildcatters Energy E&P Equity Index which holds US and Canadian listed small and mid-cap companies engaged in the exploration and production of oil and natural gas. The WCAT ETF will seek to replicate the performance of this index as closely as possible excluding fees and expenses. The Underlying Index is weighted based on a capitalization weighting methodology, adjusted for free float. Each company must have a minimum market capitalization of $1 billion and a minimum free float (shares not held by insiders) of $800 million. The index is rebalanced on a quarterly basis.
XLE – Energy Select Sector SPDR Fund ETF (NYSE Arca: XLE )
XLE 86.41 [+0.27]
Average Volume: 9828050
XLE is one of the oldest ETFs covering the Energy sector as it appeared in December of 1998. The XLE ETF seeks to match the returns of the Energy Select Sector Index before expenses. The index is 80% weighted to Oil Gas & consumable fuels and 20% to Energy equipment and Services providing representation of the energy sector of the S&P 500 index. The XLE ETF stands out for its low fees, its dividend and its high liquidity. Its top 5 holdings consist of Exxon Mobil, Chevron Corp, Schlumberger, ConocoPhilips and Occidental Petroleum.
PXI – PowerShares Dynamic Energy ETF (NYSE Arca: PXI)
PXI 53.99 [+0.0399]
Average Volume: 18770
PXI first appeared in 2006, it seeks to replicate the performance of the Dynamic Energy IntellidexSM Index. 90% of the fund’s assets are invested in common stocks of energy companies that comprise the underlying index. The Intellidex is comprised of 60 U.S. energy companies which are principally engaged in the business of producing, distributing or servicing energy-related products. Although the PXI pays a small dividend, it comes short of XLE when it comes to the expense ratio and liquidity.
RYE – Rydex S&P 500 Equal Weight Energy ETF (NYSE Arca: RYE)
RYE 78.87 [-0.31]
Average Volume: 3805
RYE ETF seeks to mirror the performance of the S&P500 Equal Weight Index Energy before fees and expenses. It was first introduced in 2006 and mirror PXI’s shortcoming in terms of liquidity and fees when compared to XLE. The ETF’s holdings are 75% weighted to Oil Gas & Consumable Fuels and 25% in Energy Equipment & Services.
IYE - iShares Dow Jones U.S. Energy ETF (NYSE Arca: IYE)
IYE 49.26 [+0.15]
Average Volume: 593273
IYE was first introduced in June of 2000; the ETF seeks to replicate the performance of US energy stocks represented by the Dow Jones US Oil & Gas Index. The index is 75% weighted to oil and gas producers and 25% to oil equipment, services and distribution.
PXE- PowerShares Dynamic Energy Explor & Prod ETF (NYSE Arca: PXE)
PXE 33.194 [-0.116]
Average Volume: 48853
PXE first appear in 2005; it seeks to replicate the performance of the Dynamic Energy Exploration & Production IntellidexSM Index before fees. The underlying index is composed of stocks of 30 US companies engaged in energy exploration and production. This is another ETF that fails to compare to XLE when it comes to expense fees and liquidity.
IEO – iShares Dow Jones U.S. Oil & Gas Exploration & Production (NYSE Arca: IEO)
IEO 80.88 [-0.53]
Average Volume: 118431
Introduced in 2006, the IEO ETF seeks to replicate the performance of the Dow Jones U.S. Select Oil Exploration & Production Index, before fees and expenses. The underlying index includes companies engaged in exploration, production, refining, and supply of oil and gas products.
XOP – SPDR S&P Oil & Gas Exploration & Prod ETF (NYSE Arca: XOP)
XOP 66.19 [-1.16]
Average Volume: 5284110
XOP ETF seeks to replicate the performance of the S&P Oil & Gas Exploration & Production Select Industry Index which is composed of oil and gas exploration and production segment in the U.S. The ETF was launched in 2006, has a low fee and is pretty liquid. The holdings are about 80% weighted to Oil & Gas Exploration and Production, 12% in Refining and Marketing and 8% composed of Integrated Oil & Gas.
VDE- Vanguard Energy ETF (NYSE Arca: VDE)
VDE 124.90 [+0.44]
Average Volume: 85998
Leave it to Vanguard when it comes to low cost ETFs, VDE is unbeatable when it comes to expenses and fees. First introduced in 2004, VDE is designed to track the performance of the U.S. Investable Market Energy 25/50 Index which is made up of stocks of large, medium-size, and small U.S. companies within the energy sector. The sector includes the construction or provision of oil rigs, drilling equipment, and other energy-related equipment and services; or companies engaged in the exploration, production, marketing, refining, and/or transportation of oil and gas products.Exxon Mobil, Chevron, ConocoPhilips and Schlumberger are the top 4 holdings of the fund.
If we choose our Oil Stock ETF for a passive investment strategy it makes sense to pick those with the lowest MERs and the highest dividend. XLE and VDE easily beat their peers and accurately respond to WTI price volatility as you see from the graph below. The PSCE ETF deserves an honorable mention for its unique exposure to small cap energy companies, its low fee and its dividend.
If you’re looking for a direct exposure to oil please check the following post: Oil ETF List and Comparison
On the other hand if you are searching for leveraged ETFs for trading purposes, please check the following:
Just remember the risks associated with leverage and make sure you have a profitable trading strategy in place.