Best Energy ETFs for 2024
The energy market can be notoriously volatile as commodities such as oil and gas are easily affected by traditional economic supply and demand imbalances as well as geopolitical issues.
While investors can purchase individual stocks in the energy sector, some opt to focus on energy ETFs which provide a broader exposure to what is happening in the energy market. In this ‘Best Energy ETFs to Watch’ article we cover a few interesting energy ETFs and the pros and cons of investing in this sector.
Table of Contents
Key Takeaways
- An energy exchange-traded fund (ETF) is a basket of stocks which represent companies active in the energy sector. Some energy ETFs limit themselves to only investing in renewable energy sources while others also invest in fossil fuels.
- Around 80% of global energy consumption is made up of fossil fuels with 8% covered by renewable energy sources. Global energy consumption is expected to be around 15% higher in 2050 than in 2021.
- Energy ETFs can provide investors exposure to the broad trend in the energy market but may also experience heightened volatility from energy prices.
What are Energy ETFs
Energy ETFs are exchange-traded funds that invest in the energy sector. An exchange-traded fund (ETF) invests in a basket of stocks that track a certain theme or sector. The fund can be bought and sold through a single transaction like purchasing shares. This makes it possible for investors to invest in many different stocks at the same time, saving time and providing investors with diversification.
The energy sector comprises companies that produce fossil fuels or are involved in the supply chain. In recent years, there has been a rise in renewable energy, including technologies such as windmills, hydropower, and solar panels. The use of fossil fuels is declining or stalling while the use of renewables is growing. Even so, the market is still dominated by fossil fuels. It is estimated that renewable energy accounted for just 8% of global energy consumption in 2022. Fossil fuels on the other hand still account for roughly 80% of global energy consumption.
Best Energy ETFs to Watch
It is important to mention that whatever constitutes the ‘best’ investment is subjective and differs for each investor according to their own financial situation and goals. This list is best used as a starting point for investors who are interested in the energy sector and are performing their own research before they make any investment decisions.
- iShares Global Clean Energy ETF - Invests Globally into Companies Producing Renewable Energy
- iShares Global Energy ETF - Invests Globally into Companies Producing Energy, Including Fossil Fuels
- iShares U.S. Energy ETF - Invests into US Companies in the Energy Sector
- Vanguard Energy ETF - Invests into the US Energy Sector
iShares Global Clean Energy ETF
The iShares Global Clean Energy ETF is an energy ETF issued by BlackRock, the largest asset manager in the world with around $9 trillion in assets under management. The goal of the fund is to offer investors exposure to the leading clean energy companies in both developed and developing markets. Companies that exceed a certain threshold of CO2 emissions are excluded outright, meaning that no companies using or producing fossil fuels either directly or indirectly appear in this ETF’s holdings.
The top 10 holdings of this energy ETF by size of capital allocation are First Solar Inc (~8.4%), Consolidated Edison Inc (~7.3%), Enphase Energy Inc (~6.8%), Vestas Wind Systems (~4.8%), Iberdrola SA (~4.5%), SolarEdge Technologies Inc (~4.3%), China Yangtze Power LTD (~3.8%), EDP Energias de Portugal (~3%), Chubu Electric Power Inc (~2.9%), and Orsted (~2.6%).
iShares Global Energy ETF
The iShares Global Energy ETF is issued by BlackRock. This ETF invests in the energy sector as a whole and subsequently, most of its capital is tied up in companies that produce or use fossil fuels.
The top 10 holdings of this ETF by the size of capital allocation are Exxon Mobil Corp (~17%), Chevron Corp (~11%), Shell PLC (~7.8%), TotalEnergies (~5.6%), ConocoPhillips (~4.6%), BP PLC (~4%), Schlumberger NV (~3%), EOG Resources Inc (~2.7%), Enbridge Inc (~2.5%), and Canadian Natural Resources LTD (~2.5%).
The top sectors this ETF invests in are Integrated Oil and Gas (~55%), Oil and Gas Exploration & Production (~21%), Oil & Gas Storage & Transportation (~9%), Oil & Gas Refining & Marketing & Transport (~7%), and Oil & Gas Equipment & Services (~6%). With Admirals, you can trade the iShares Global Energy ETF CFD. Contracts for Differences (CFDs) are derivative contract of the underlying market which enables you to trade long and short.
iShares U.S. Energy ETF
The iShares U.S. Energy ETF invests in the energy sector as a whole and includes companies that produce or use fossil fuels. The difference is that this energy ETF restricts itself to American companies only. The performance of this fund can therefore be more subject to changes in American law regarding the use of fossil fuels or CO2 emissions than other funds that invest more globally.
The top 10 holdings of this ETF by size of capital allocation are Exxon Mobil Corp (~23%), Chevron Corp (~15.3%), ConocoPhillips (~7.5%), Schlumberger NV (~4.4%), EOG Resources Inc (~3.9%), Marathon Petroleum Corp (~3.5%), Philips (~3%), Pioneer Natural Resource (~2.9%), Valero Energy Corp (~2.7%), Occidental Petroleum Corp (~2.6%).
The top sectors this ETF invests in are Integrated Oil & Gas (~41%), Oil & Gas Exploration & Production (~27%), Oil & Gas Storage & Transportation (~10%), Oil & Gas Refining & Marketing & Transportation (~10%), Oil & Gas Equipment & Services (~10%). The remaining 2% is spread over Semiconductors (~1%), and Semiconductor Equipment (~1%). With Admirals, you can trade the iShares Global Energy ETF CFD.
Vanguard Energy ETF
The Vanguard Energy ETF invests in the energy sector of the United States. It includes companies that produce or use fossil fuels, notably Exxon and Chevron. This ETF has been around since 2004 and is issued by Vanguard, one of the largest asset managers globally and a big proponent of index investing.
The top 10 holdings of this fund by size of capital allocation are Exxon Mobile Corp (~22.8%), Chevron Corp (~14.8%), ConocoPhillips (~7.3%), Schlumberger Ltd (~4.3%), EOG Resources Inc (~3.8%), Marathon Petroleum Corp (~3.1%), Pioneer Natural Resources Co (~2.8%), Philips 66 (~2.7%), Valero Energy Corp (~2.4%), Williams Cos Inc (~2.1%).
The top sectors this energy ETF invests in are Integrated Oil & Gas (~40%), Oil & Gas Exploration & Production (~29%), Oil and Gas Equipment & Services (~11%), Oil & Gas Storage & Transportation (~10%), Oil & Gas Refining & Marketing (~9%). The rest of the fund’s capital is spread over Oil & Gas Drilling (~1.3%) and Coal & Consumable Fuels (~0.4%). With Admirals, you can trade the Vanguard Energy ETF CFD.
How to Invest in Energy ETFs
With Admirals, you can invest in global energy ETFs and stocks with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission.
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission.
- Germany and France stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission
Learn more about investing commissions on the Admirals Contract Specification page. Search for global stocks and ETFs from the Invest.MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Conclusion: Pros & Cons of Investing in Energy ETFs
Investors looking to invest in energy ETFs need to ask themselves whether they want to invest in fossils, or if they prefer a ‘green’ portfolio. An investor might choose to limit themselves to renewable energy investments because they think these will grow faster and produce better returns on investment, or for example because of ethical considerations.
One of the primary advantages of investing in the energy sector is that energy will always be in demand. Energy is part of the supply chain of nearly every product or service, making it a relatively robust product. Moreover, global energy use is expected to continue growing in the coming decades as the world’s population reaches its peak and more countries become developed.
Among the downsides of investing in the energy sector are the risks associated with fossil fuels like commodity price volatility risk (the fluctuating prices of oil and gas affect the stock prices of companies active in this sector), the prospect of the fossil fuel industry being increasingly phased out across the world, and possible bad press related to large environmental damages because of oil spills, for example.
Continue Reading:
- Energy Trading Guide
- How to Trade Commodities Guide
- What Are ETFs? ETFs Explained
- How to Trade ETFs with €1000
- The CFD Trading Guide
FAQs on Best Energy ETFs
What are energy ETFs?
Energy ETFs are funds that invest in a basket of stocks that are involved in the energy sector, for example by producing oil or gas, or renewables like wind or solar energy.
Are energy ETFs a good investment?
Global energy consumption is expected to increase in the coming decades, though there is little guarantee what the makeup of all that energy will be. Investment analysts are unsure if fossil fuels will prove to have some staying power, and neither do they know which renewable sources will become dominant.
What is iShares Global Clean Energy ETF?
The iShares Global Clean Energy ETF is an ETF issued by BlackRock. This energy ETF invests in companies across the globe that are active in producing renewable energy like solar, wind, or hydropower.
What are the best energy ETFs?
Whatever constitutes the ‘best’ energy ETF is dependent on each investor’s personal financial situation, as well as their views and expectations. Some of the most well-known energy ETFs include the iShares Global Energy ETF, iShares Global Clean Energy ETF, iShares U.S. Energy ETF and the Vanguard Energy ETF.
Does Vanguard have an energy sector ETF?
Vanguard issues an energy ETF called the Vanguard Energy ETF. It trades under the ticker symbol ‘VDE,’ on the NYSE Arca.
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