The energy sector contains everything from equipment and services to oil, gas, and alternative means of energy. Energy exchange-traded funds (ETFs) include dozens of stocks specific to this space to diversify an investment portfolio. The best energy ETFs offer shares of the most popular companies at a price point that investors can get excited about.
Energy is booming, and in many ways, a country’s energy consumption marks its impact on the world. Moreover, energy usage only continues to escalate as new technologies emerge and power grids are brought to remote places. According to the IEA, global energy demand grew 5% in 2021 and is projected to grow 4% in 2022.
Read on to hear about the best ETFs in energy to buy.
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Best Energy ETFs
Invesco Solar ETF (NYSEARCA: TAN)
Invesco Solar ETF impacts the energy sector through investments in stocks that bask in the sunlight. With over 90% of the companies focused on solar energy, the clean energy ETF contains some of the biggest names in the space. Of these solar energy stocks, Invesco Solar’s clean energy ETF includes SolarEdge Technologies (SEDG), Xinyi Solar Holdings Ltd., and Enphase Energy Inc. (ENPH), making up 30% of the fund.
SolarEdge Technologies, representing 11.08% of the fund, creates inverters for solar energy systems. These inverters are the essential component that allows the conversion of solar into usable energy.
Xinyi Solar Holdings’ main contribution to the energy sector is the glass used in solar panels. Making up 8.73% of the fund, Xinyi is one of the few clean energy companies that produce these panels.
Enphase Energy provides the resources homeowners, and companies need to collect and utilize their own solar power. The clean energy company represents 8.67% of the funds in Invesco’s portfolio.
With electricity prices in constant flux, more companies and households are turning to solar as more cost-effective alternative energy. As a result, the cost of solar power has dropped nearly 90% over the last decade. Projections place the industry at $223.3 billion within the next five years.
The expense ratio for investing in this clean energy ETF is reasonable at 0.69%.
With the solar energy industry on the rise, Invesco Solar ETF provides the means to capitalize on the clean energy sector as a whole.
Vanguard Energy Index Fund ETF (NYSEARCA: VDE)
The Vanguard Energy Index Fund ETF holds companies involved almost exclusively in the oil and gas sector. Shares drill down to 40% in integrated oil and gas, 30% in oil and gas exploration and production, and 10% each in oil and gas services and refining.
Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP) are the top individual stocks listed in this energy ETF. Of the 103 energy companies involved in the ETF, the ten most significant holdings make up 67% of total assets.
A result of the merger between two oil giants in 1999, Exxon Mobil continues to produce energy in the oil and gas sector. However, in an attempt to combat climate change, Exxon Mobil uses its next-gen technology to introduce cleaner energy while looking into other sectors.
Chevron performs oil and gas exploration and production both off the coast and on the mainland in several parts of the world. While the company’s main asset is oil, gas is becoming more prevalent as well.
ConocoPhillips uses its energy equipment to sustainably find and produce oil and gas. The company currently has operations on every continent north of Antarctica.
As expected, crude oil prices have been rising since December of last year. With crude oil prices rising, many energy companies are seeing growing revenue and earnings and thus favorable share price growth.
Investors will be thrilled to hear that, unlike most other ETFs, Vanguard Energy’s expense ratio is a minuscule 0.10%.
First Trust Natural Gas ETF (NYSEARCA: FCG)
First Trust Natural Gas ETF is unsurprisingly dedicated to investments in the exploration and production of natural gas. Spiking twice this year already, natural gas prices are trending upward as 2022 rolls on.
The energy ETF tracks 43 individual stocks from utility companies to gas exploration and extraction operations. While quite diverse, the top assets under management (AUM) are Western Midstream Partners LP (WES), Occidental Petroleum Corp. (OXY), and ConocoPhillips.
Midstream Partners LP is an end-to-end natural gas provider. Representing 5.09% of the fund, Midstream is a subsidiary of the number two stock on First Trust’s list.
Occidental Petroleum is a Fortune 500 company working exclusively in the natural energy sector and makes up 4.74% of First Trust’s ETF. As a leader in the industry, it uses its technologies to reduce carbon consumption.
ConocoPhillips produces oil and natural gas, accounting for 4.66% of the funds in this energy ETF. It is one of a few companies with operations on six continents, using technology to uncover materials in areas previously thought inaccessible.
The expense ratio for this ETF is 0.67%, a reasonable fee for investors. It’s worth noting that anyone investing in this ETF also receives a 5.07% dividend yield.
Best Renewable Energy ETFs
iShares Global Clean Energy ETF (NASDAQ: ICLN)
iShares Global Clean Energy ETF covers a spectrum of green energy solutions. The ETF includes a healthy mix of solar and wind energy stocks. Other investments within the ETF include electric utilities and equipment.
Total assets under management amount to over $4 billion among 76 different holdings. The three highest weighted holdings are Vestas Wind Systems, Enphase Energy, and Consolidated Edison (ED).
More and more individuals are turning to clean energy to protect the environment. As a result, prices for electricity generated by companies featured in clean energy ETFs look to only become more affordable over time.
Vestas Wind Systems uses wind turbines placed throughout the United States and Canada as green energy sources. Wind energy gathered serves 1,400 suppliers across the region. At 7.73% of the fund, Vestas is the top stock in the iShares Global Clean Energy ETF.
Enphase Energy’s alternative energy solutions comes from the sun. The venture allows companies and homeowners to harness solar power for use in everything from powering buildings to charging electric vehicles.
Consolidated Edison is the second-largest producer of alternative solar energy in North America. It provides green energy to the greater New York City (NYC) area and extends to New Jersey. Consolidated Edison has the distinction of being one of three Dividend Aristocrat utilities and also one of the few stocks with 100+ years of paying a dividend.
With an expense ratio of 0.42%, fees for investing are less than most other clean energy ETFs out there.
Global X Renewable Energy Producers ETF (NASDAQ: RNRG)
Global X Renewable Energy contains an entire portfolio of clean energy investments among its 44 holdings. If you’re looking to invest in the renewable energy sector, this ETF provides the means to pick up several stocks in one fund.
Being a global clean energy ETF, the list of assets within its ETF holdings comes from all parts of the globe. The most notable companies on the list are Verbund AG, Energy Absolute, and EDP Renewables.
Verbund AG is an Austrian enterprise representing 6.29% of Global X’s assets. The company harnesses the power of wind farms, hydroelectric dams, and solar grids to maximize impact on this energy sector.
Energy Absolute taps into solar and wind energy for consumption and storage. It also provides the components needed to power electric ferries and vehicles. The ETF currently has a 6.20% holding in Energy Absolute.
EDP Renewables is based in Spain, delivering wind energy to 26 countries around the globe. Wind farms are located on and offshore alongside a growing number of solar parks. EDP makes up 5.80% of the net assets listed within Global X Renewable.
Global X has a 0.65% expense ratio that investors are charged to cover administrative fees. Although it used to pay out a dividend yield, the ETF has not done so since the beginning of the global pandemic.
ALPS Clean Energy ETF (NYSEARCA: ACES)
The majority of the ALPS Clean Energy exchange-traded fund holdings consist of wind, solar, and geothermal stocks. Nearly 20% of the remaining holdings fall into the electric vehicle space.
Each of the 44 stocks are North American companies. The stock list includes popular names like Tesla (TSLA), but also Brookfield Renewable Partners (BEP), Northland Power, and NextEra Energy Partners (NEE) are the most significant holdings.
Brookfield Renewable is an energy giant based in Canada with around $690 billion in assets. In addition to the wind, solar, and hydro energy, the company also has the means to distribute power to consumers. Brookfield encompasses 6.66% of the fund’s total weight.
Northland Power taps into the power of the wind both onshore and offshore while also focusing on solar power and efficient natural gas. While based in North America, the company is investing in resources both in South America and Europe as well. Ranking number two on ALPS’ ETF, it comprises 6.59% of the fund.
NextEra Energy is the world’s largest producer of wind and solar energy and is among the top companies globally for innovation. Making up 5.67% of the ETF’s total weight, NextEra has had a profound impact on reducing America’s dependence on foreign oil.
An expense ratio of 0.55% puts ALPS a little lower on the fee scale than similar clean energy ETFs in the sector.
Should You Invest in Energy?
Energy consumption is only projected to increase as we introduce more technology to an even greater number of people worldwide. In this day and age, a country’s infrastructure is so closely tied to the energy sector that it could almost be one and the same.
There isn’t much question about investing in the energy space. The industry has only grown by leaps and bounds over the years, powering our latest gadgets and likely our cars in the near future.
Instead, an investment decision needs to focus on which energy space to invest in. Traditional gas and oil stocks have been mainstream for the past 100 years, but renewable sources of energy are rising as options to invest in as well.
Like any other opportunity, investors need to take the time to research current and future trends to determine which corner of the market makes the most sense to invest in at any given time. Even in such a well-established sector, failing to do so can result in a lost investment.
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Should You Invest in Energy ETFs?
ETFs offer a means to invest in several stocks in a particular sector under one ticker. While some stocks listed in ETFs can be pricey, investing in a fund often provides investors the means to buy those shares for a fraction of the price. Some ETFs can even offer a dividend yield to further boost returns.
With a large number of stocks contained within ETFs, investing can lead to lower volatility and more diversification. If even a handful of holdings perform poorly, the ETF still has several others to keep your investment on track.
Unlike mutual funds, ETFs can be bought and sold throughout the trading day and see regular changes in share price. So, when an ETF looks like a great buy or reaches a sale threshold, it’s easy to do so.
Energy ETFs allow investors to in the energy sector. Most energy ETFs are specific to a particular type of energy and incorporate stocks that fit into that category alone.
Clean energy ETFs focus on companies that generate wind, solar, or geothermal power. There are also energy ETFs that include only more traditional energy sources such as oil and natural gas.
Best Energy ETFs: Final Thoughts
There’s no ideal formula for investing in the stock market, and there never will be. That being said, ETFs frequently offer a means to buy a large number of high-profile stocks for a lower cost while offering more diversification.
Energy is at the forefront of our world’s technological revolution. Traditional and clean energy ETFs offer investors a chance to own a piece of this space at a more affordable cost.
Like any other investment, be sure to do your own thorough research before making any investment.
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Noah Zelvis is an American copywriter for The Stock Dork who is on a mission to help clarify the nuances of the financial world. With a background in tech design, Noah is no stranger to numbers and financial data. He now uses these powers for good by writing reviews for The Stock Dork. When he’s not working, you’ll likely find Noah out running or traveling.