Introduction
Oil is considered one of the most important sources of energy in the world. It can be refined into gasoline and other fuels, and many other products like plastics rely on oil. Although fossil fuels have become a topic of debate in recent years, there is no strong evidence that the world will stop using oil in the near future.
Oil ETFs
For investors who want to seize an opportunity to invest in this extremely valuable natural resource, investing in oil-focused exchange-traded funds (ETFs) may be the right choice. We have compiled this list, which is not in any particular order, of the best oil ETFs for investors.
United States Oil Fund
Three-year return (as of February 17, 2022): -11.61% Expense ratio: 0.83% Assets under management (as of February 17, 2022): $2.6 billion Inception date: April 10, 2006
The United States Oil Fund (USO) is one of the most direct ways for investors to gain an investment opportunity in oil as a natural resource. The goal of this exchange-traded fund is to track the daily percentage change in the price of light sweet crude oil.
In short, when the price of oil rises, the price of USO should rise. When the price of oil falls, the price of USO should fall too. This can be attractive for investors who do not want to invest directly in the oil commodity but still want to capitalize on oil.
With $2.6 billion invested in the fund as of February 2022, USO is relatively liquid. However, the expense ratio of 0.83% is the highest among the ETFs in this list, which equates to $8.30 for every $1,000 invested. Additionally, oil performance has been poor over the past three years, leading to the fund losing almost a quarter of its value during that time.
iShares U.S. Oil Equipment & Services
Three-year return (as of February 17, 2022): -12.12% Expense ratio: 0.41% Assets under management (as of February 17, 2022): $147.0 million Inception date: May 1, 2006
The iShares U.S. Oil Equipment & Services (IEZ) fund offers less direct exposure to the oil market. Instead of tracking the price of oil directly, this fund invests in companies that provide various oil drilling equipment and companies that offer services to oil-producing companies.
This provides investors with a way to gain some exposure to oil, as the fortunes of these companies are tied to the success of oil companies. However, it can reduce some of the risks posed by unsuccessful oil exploration or fluctuations in oil prices.
One of the drawbacks of the fund is that it only manages $147.0 million, so the stocks may not be liquid enough as investors would like. Also, the expense ratio is slightly high at 0.41%, which equals $4.10 for every $1,000 invested.
SPDR S&P Oil & Gas Exploration & Production ETF
Three-year return (as of February 17, 2022): -2.48% Expense ratio: 0.35% Assets under management (as of February 17, 2022): $4.5 billion Inception date: June 19, 2006
The SPDR S&P Oil & Gas Exploration & Production (XOP) fund focuses on companies directly involved in oil discovery and extraction. This is another indirect way to invest in oil. Instead of buying oil directly, it buys shares in companies that profit from extracting and selling oil.
You will see oil production companies produce higher returns when oil prices are high, which means that the price of oil still plays a role in your investment. However, these companies can create value in other ways, such as discovering new reserves, which can somewhat protect your investments when oil prices fall.
With
3.3 billion dollars under management, this trading fund is very liquid. It also has a low expense ratio of 0.35%, which is equivalent to $3.50 for every $1000 invested. It has also outperformed funds that invest more directly in oil as a commodity, having only lost 7.64% of its value over the past three years.
Vanguard Energy ETF
Three-year return (as of February 17, 2022): 6.30% Expense ratio: 0.10% Assets under management (as of February 17, 2022): $8.4 billion Date of establishment: September 23, 2004
The Vanguard Energy ETF is not exclusively focused on oil. Instead, this fund aims to track a benchmark index consisting of companies in the energy sector as a whole. This includes oil companies as well as companies specializing in natural gas and
Source: https://www.thebalancemoney.com/five-best-oil-etfs-for-2022-5219579
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