Why FCG, XOP, and IEO are the best oil and gas ETFs for Q2 2021

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Oil and gas exchange-traded funds (ETFs) provide investors with more straightforward and quicker access to the often competitive energy market than many other alternatives. Although there is a potential for substantial returns by investing in the oil and gas business, the risks may be high. For example, oil futures tend to be volatile and often require substantial initial investment, which excludes many investors. Oil and gas ETFs, on the other hand, provide access to a basket of energy shares. While some oil and gas ETFs watch futures contracts or commodity prices, the ETFs below concentrate solely on stocks.

Key Takeaways

  • The oil and gas sector dramatically underperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are FCG, XOP, and IEO.
  • The top holdings of these ETFs are Diamondback Energy Inc., Renewable Energy Group Inc., and ConocoPhillips, respectively.
The oil and gas ETFs that trade in the U.S. include approximately 12 ETFs, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The oil and gas sector, as calculated by the S&P 500 Energy Sector Index, has significantly underperformed the wider market, with a total return of-12.3 per cent over the past 12 months compared to a total return of 18.9 per cent for the S&P 500.1 The best-performing oil and gas ETF, based on results over the past year, is the First Trust Natural Gas ETF (FCG). We review the top three ETFs for oil and gas below. The output figures for Benchmark are as of February 10, while all other statistics are as of Feb. 15.2.

First Trust Natural Gas ETF (FCG)

  • Performance over 1-Year: 30.2%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 2.99%
  • 3-Month Average Daily Volume: 961,124
  • Assets Under Management: $129.9 million
  • Inception Date: May 11, 2007
  • Issuer: First Trust

FCG is a multi-cap, mixed fund for the ISE-Revere Natural Gas Index. The index is balanced and holds exchange-listed companies that derive a large portion of revenues from the discovery and development of natural gas. FCG owns a basket of approximately 34 firms, with the top 10 holdings accounting for approximately 45 per cent of the assets invested. The Fund’s top holdings include Diamondback Energy Inc. (FANG); Occidental Petroleum Corp. (OXY); and Marathon Oil Corp. (MRO), both of which are energy firms involved in the discovery and development of natural gas and related items.

SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

  • Performance over 1-Year: 2.8%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 1.48%
  • 3-Month Average Daily Volume: 8,343,997
  • Assets Under Management: $2.7 billion
  • Inception Date: June 19, 2006
  • Issuer: State Street SPDR
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XOP is a multi-cap, blended ETF targeting the S&P Oil & Gas Exploration & Production Select Industry Index. The index aims to provide exposure to companies active in the Integrated Oil & Gas, Oil & Gas Exploration & Development and Oil & Gas Refining & Marketing subsectors.4 Due to its equal weighting approach, XOP is more balanced than some of the other oil and gas ETFs. The top holdings of this fund include Renewable Energy Group Inc. (REGI), a manufacturer of biofuels and renewable energy; Diamondback Energy; and Marathon Oil.5.

iShares U.S. Oil & Gas Exploration & Production ETF (IEO)

  • Performance over 1-Year: -5.8%
  • Expense Ratio: 0.42%
  • Annual Dividend Yield: 2.65%
  • 3-Month Average Daily Volume: 140,959
  • Assets Under Management: $188.9 million
  • Inception Date: May 5, 2006
  • Issuer: iShares

IEO is a mixed multi-cap fund that monitors the Dow Jones U.S. Select Oil Exploration & Production Index. This index consists of U.S. shares in the oil and gas exploration and production industries. The top 10 holdings account for nearly three quarters of invested assets, and the top 5 holdings represent more than 50 percent . The top three holdings are ConocoPhillips (COP); EOG Resources Inc. (EOG); and Phillips 66. (PSX). The first two firms are mainly oil and/or gas exploration and production companies, while the third is a downstream energy business engaged in oil refining, marketing and transport.

The comments, opinions and analyses expressed herein are for informational purposes only

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