8 Best Energy ETFs to Buy

Energy Select Sector SPDR Fund

• Assets under management: $35.5 billion
• Dividend yield: 3.4%
• Expenses: 0.09%, or $9 annually on a $10,000 investment

Every conversation about the best energy ETFs to buy should begin with the Energy Select Sector SPDR Fund (XLE), the largest such exchange-traded fund on the market by a country mile.

With more than $35 billion under management, XLE is more than four times as big as the runner-up in the category, the Vanguard Energy ETF (VDE), at approximately $8 billion.

XLE is pretty straightforward: It's a collection of the 22 energy stocks currently found within the S&P 500 Index. That translates into a concentrated heap of big, blue-chip, U.S.-based oil-and-gas names.

That also means outsized exposure to two stocks, Exxon Mobil (22% weighting) and Chevron (15%), that combine to account for roughly 37% of XLE's assets.

Concentration risk is a serious concern for many ETFs. If one or two stocks account for so much of the portfolio, how much diversification are you really getting? But energy stocks, large and small, already move together based on underlying commodity prices.

In fact, heavy allocations to Exxon and Chevron provide ballast because parts of these integrated majors' businesses can still profit even when oil prices aren't rising.

Learn more about XLE at the SPDR provider site.

Fidelity MSCI Energy ETF

• Assets under management: $1.6 billion
• Dividend yield: 3.1%
• Expenses: 0.084%

Some investors seeking out the best ETFs to buy simply prefer to choose the least expensive fund on offer. In the energy sector right now, that's the Fidelity MSCI Energy ETF (FENY).

The good news: With FENY, you don't get less for your money – you get more. This Fidelity ETF tracks the MSCI USA IMI Energy Index, which currently results in 100 or so holdings versus 22 for XLE. Past that, though, you're getting a similar flavor of exposure. 

FENY is a predominantly large- and mega-cap index, with about a two-fifths of the portfolio in mid-cap stocks and another 14% in small- and micro-caps. You're also getting quite a bit of Exxon and Chevron, at 21% and 13%, respectively.

Other holdings include ConocoPhillips (COP, 6% weight), EOG Resources (EOG, 4%) and Williams Companies (WMB, 4%).

The Fidelity energy ETF's fee difference versus XLE isn't massive either, at 0.084% versus 0.09%. That's less than a basis point, which is equal to 0.01%.

But you are getting a wider swath of stocks for less, which makes FENY worthy of consideration.

Learn more about FENY at the Fidelity provider site.

Invesco S&P 500 Equal Weight Energy ETF

• Assets under management: $555.8 million
• Dividend yield: 2.4%
• Expenses: 0.40% 

If these massive allocations to Exxon and Chevron make you a little nervous, there's a way to get diversified energy exposure that's much more evened out.

Funds such as XLE and FENY are weighted by market cap, which means the bigger the stock, the more of it they hold in their portfolios. However, while many sector funds are weighted this way, a few aren't.

That number includes the Invesco S&P 500 Equal Weight Energy ETF (RSPG).

Like XLE, the Invesco S&P 500 Equal Weight Energy ETF invests in the S&P 500 Energy Index, which means a current portfolio of the same 20 or so stocks. But instead of weighting them by market cap, RSPG starts every stock off at the same weight each quarter.

The stocks might move up or down over the next three months. But regardless of how big or small they've gotten, RSPG will simply rebalance them at the same weight come the following quarter.

Right now, then, neither Exxon or Chevron are among RSPG's top five holdings. Rather, EQT Corp (EQT) and Coterra Energy (CTRA) – which combined are worth around $54 billion versus Chevron's $284 billion and Exxon's $490 billion – are the two top stocks, with current weightings of roughly 5% apiece.

Again, most energy stocks move along with oil and gas prices, so RSPG's performance is often similar to XLE's.

Still, if you want to rest easy knowing you're not carrying any excess single-stock risk, this Invesco fund will do the trick.

Learn more about RSPG at the Invesco provider site.

iShares Global Energy ETF

• Assets under management: $2.0 billion
• Dividend yield: 4.6%
• Expenses: 0.41% 

The largest, most liquid fund covering international energy equities is the iShares Global Energy ETF (IXC) – a $2-billion portfolio of 52 companies that dominate global energy production, refining, storage and other industries.

"Global" is the keyword here – it means the fund includes both domestic and international stocks. The official breakdown is approximately 62% U.S. and 38% rest of world, with Canada (13%), the U.K. (11%) and France (5%) representing the top non-American country weights.

Exxon and Chevron lead the way here, at 18% and 10% allocations, respectively. But you're also getting significant exposure to international energy giants including Britain's Shell (SHEL, 7%) and BP (BP, 3%) and France's TotalEnergies (TTE, 5%).

It's worth noting that in both the short and long term, U.S.-based energy stocks have outperformed their international peers.

But if you're looking to mitigate a little geographic risk while still printing a nice profit from higher global commodity prices, this is one of the best energy ETFs to do so.

Learn more about IXC at the iShares provider site.

iShares Global Clean Energy ETF

• Assets under management: $1.4 billion
• Dividend yield: 1.8%
• Expenses: 0.41%

All of the best energy ETFs on this list have so far covered traditional energy – namely, oil and natural gas. But clean energy is another avenue for potential growth that investors shouldn't ignore.

Investors wanting exposure to renewable energy should consider the iShares Global Clean Energy ETF (ICLN). In lieu of traditional oil-and-gas names, ICLN is a diversified portfolio of 100 holdings across numerous industries, including electric utilities (34%), renewable electricity (27%) and heavy electrical equipment (11%) as well as semiconductors (11%) and semiconductor equipment (6%) and others that produce or otherwise provide technology or infrastructure for cleaner energy.

Individual green energy stocks include the likes of PV solar modules maker First Solar (FSLR) and U.S.-based residential and commercial solar firm Enphase Energy (ENPH) as well as Danish wind turbine maker Vestas Wind Systems (VWDRY).

Green energy and traditional energy often move in different directions; indeed, ICLN is down more than 20% in the past 12 months.

But geopolitical risks could spur further investment in cleaner technologies, setting up energy ETFs like ICLN for better returns.

Learn more about ICLN at the iShares provider site.

SmartETFs Sustainable Energy II ETF

• Assets under management: $4.0 million
• Dividend yield: 0.8%
• Expenses: 0.79%

We've witnessed a vast expansion in the number of active ETFs the past few years, which brings us to the SmartETFs Sustainable Energy II ETF (SOLR).

SOLR, which is actively managed and fully transparent, is an equally weighted fund with roughly 30 positions.

While the ticker would seem to indicate a solar tilt, it generally invests "in companies poised to benefit from the shift to sustainable energy," whether that's actually producing alternative or renewable sources of energy or otherwise making these kinds of energy more efficient and/or accessible.

Holdings include French solar panel maker Schneider Electric (SBGSY) and electronics manufacturer Hubbell (HUBB).

Learn more about SOLR at the SmartETFs provider site.

Alerian MLP ETF

• Assets under management: $10.2 billion
• Dividend yield: 7.7%
• Expenses: 0.85%

Income-minded investors might prefer our next pick to many of the other still-generous dividend ETFs on this list.

The Alerian MLP ETF (AMLP) is interested in a special subsector of energy: master limited partnerships (MLPs).

Now, master limited partnerships themselves are merely a business structure – one that pairs the benefits of publicly traded equity with some special tax perks.

From contributor Aaron Levitt:

"MLPs, which first began to form in the 1980s, are a type of 'pass-through entity.' That's because their income isn't taxed at the corporate level, and is instead 'passed through' directly to owners and investors via dividend-esque 'distributions.' This system typically results in much-higher-than-average yields, often in the 7%-9% range."

However, as it pertains to the sector, most energy MLPs tend to relate to infrastructure: pipelines, terminals, storage and other facilities that make up the energy supply chain.

AMLP's holdings, for instance, include the likes of energy infrastructure firms Energy Transfer (ET) and Enterprise Products Partners (EPD).

These types of companies typically feature much higher yields than exploration-and-production, refinery and distribution companies – evident in AMLP's juicy 7%-plus yield.

One benefit of holding MLPs through the AMLP energy ETF is that you can avoid the K-1 tax form that's typically required when unitholders receive MLPs' pass-through income (referred to as distributions).

AMLP processes the K-1 forms and instead distributes a basic 1099 to shareholders instead. But do consider consulting your tax adviser when deciding how to invest in MLPs.

Learn more about AMLP at the ALPS Advisors provider site.

United States 12 Month Oil Fund LP

• Assets under management: $52.5 million
• Dividend yield: 0.0%
• Expenses: 0.79%

Most of the best energy ETFs only allow you to gain exposure to changes in energy prices via energy stocks. But a few funds allow you to invest in another way: energy futures.

The largest such fund is the United States Oil Fund LP (USO), which tracks the price of West Texas Intermediate crude oil, the North American benchmark.

But numerous weaknesses were exposed when oil prices went negative during the COVID crash of 2020, forcing the ETF to change its investment structure multiple times. 

It previously only invested in "front-month" futures, forcing it to constantly sell contracts about to expire and replace them with futures expiring in the next month. This resulted in disastrous results during 2020's oil plunge.

Subsequent changes allowed it a little more flexibility to invest in longer-dated contracts. 

We prefer a related way to track oil: USO's little brother, the United States 12 Month Oil Fund LP (USL). Like USO, USL trades futures, but it does so with not only front-month contracts but also contracts for the following 11 months.

Basically, that means it's trading across 12 months of futures instead of just a couple. This strategy historically has produced gains for USL that more closely track actual spot oil prices than USO.

Just know USL's weaknesses. While it's a more direct play on oil prices, it still won't perfectly track WTI, and you won't receive dividend income like you will with so many of the other energy ETFs on this list.

(Note: If you want to play natural gas in a similar manner, USCF also offers the United States 12 Month Natural Gas LP (UNL), at a 1.71% expense ratio.)  

Learn more about USL at the USCF provider site.

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