11 Best Energy ETFs: Top Oil, Gas and Renewable Energy Funds

Published on March 19, 2024 at 8:31 am by Hamna Asim in ETF Trading, News

In this article, we discuss 11 best energy ETFs to buy. If you want to skip our discussion on the energy sector, head over to 5 Best Energy ETFs: Top Oil, Gas and Renewable Energy Funds.

The oil and gas sector has witnessed a significant increase in merger and acquisition (M&A) activity, surpassing $155 billion in deals in the fourth quarter of 2023 alone, as reported by Bloomberg. This surge is attributed to challenging market conditions, prompting companies, especially those in upstream, midstream, and oil field services, to pursue consolidation into 2024. Middle market firms are expected to be particularly active in this M&A wave, necessitating proactive positioning for strength in the cycle. Valuation will be a key consideration in these deals, given the varying deal types and conditions prevalent in the oil and gas ecosystem. Furthermore, energy companies are increasingly leveraging AI technologies, including machine learning, to tackle challenges and capitalize on opportunities in the evolving energy landscape. AI solutions find application in optimizing production processes, monitoring emissions, enhancing safety measures, and improving customer experiences.

According to Deloitte, the energy sector is currently undergoing substantial changes due to four major factors – geopolitical shifts, economic fluctuations like high interest rates and increasing materials costs, evolving regulations, and the rapid advancement of new technologies. These elements greatly influence the oil and gas industry, shaping its direction in the coming years. Despite these challenges, the global oil market has shown resilience, boosted by OPEC+’s cuts in output, which have driven Brent oil prices over $90 per barrel. Meanwhile, US Henry Hub natural gas prices have rebounded to $3.50 per million British thermal units (mmBtu) in early November 2023. These developments highlight the complex interactions between geopolitical tensions, supply and demand dynamics, and regulatory frameworks impacting energy markets worldwide. Despite disruptions, global oil demand is expected to continue growing, potentially surpassing 100 million barrels per day for the first time in history, with a projected increase of 2.3 million barrels per day in 2023. This optimistic outlook is echoed by strong growth in electric vehicle sales, which surged by over 35% in 2023, with one out of every seven cars sold being electric.

In 2024, Deloitte anticipates a solid beginning for the oil and gas industry, buoyed by its financial strength and favorable oil prices, barring any further macroeconomic challenges. This financial stability is expected to enable companies to sustain disciplined capital programs and prioritize shareholder interests, with the global upstream industry projected to maintain its 2023 investment levels and generate significant free cash flows. However, the industry’s continued financial robustness is likely to raise expectations among investors, regulators, and other stakeholders for greater progress in emissions reduction, increased investments in low-carbon energy sources, and improved shareholder returns. These heightened expectations are expected to drive O&G companies to intensify their efforts to reduce emissions and enhance economic performance.

Moreover, the International Energy Agency (IEA) reports significant expansion in global renewable electricity generation capacity, with a growth rate unprecedented in the past three decades. In 2023, renewable energy capacity increased by 50%, reaching nearly 510 gigawatts (GW), predominantly driven by solar photovoltaic (PV) installations. China notably led the surge, commissioning as much solar PV capacity in 2023 as the entire world did in 2022, alongside a 66% increase in wind power additions. Europe, the United States, and Brazil also witnessed record-high growth in renewable capacity. This surge reflects the momentum generated by commitments made at the COP28 climate conference to triple global renewable capacity by 2030. The IEA forecasts global renewable power capacity to reach 7,300 GW by 2028, driven largely by solar PV and wind, surpassing coal as the largest source of global electricity generation by early 2025. However, to achieve the COP28 targets, countries must address multiple challenges, including policy uncertainty, inadequate investment in grid infrastructure, and administrative barriers.

Some of the best energy stocks to buy include First Solar, Inc. (NASDAQ:FSLR), Valero Energy Corporation (NYSE:VLO), and ConocoPhillips (NYSE:COP). However, this article includes the best energy ETFs to buy, which also expose investors to top stocks in the industry.

Our Methodology

We curated our list of the best energy (oil, gas, and renewables) ETFs by choosing consensus picks from multiple credible websites. We have mentioned the 5-year share price performance of each ETF as of March 14, 2024, ranking the list in ascending order of the share price. We have also discussed the top holdings of the ETFs to offer better insight to potential investors.

A row of massive oil rigs in a desert landscape, against a setting sun.

Best Energy ETFs: Top Oil, Gas and Renewable Energy Funds

11. Energy Select Sector SPDR Fund (NYSE:XLE)

5-Year Share Price Performance as of March 14: 37.93%

Energy Select Sector SPDR Fund (NYSE:XLE) aims to mirror the performance of the Energy Select Sector Index, representing the energy sector of the S&P 500. It provides exposure to companies in oil, gas, consumable fuel, energy equipment, and services industries. Established on December 16, 1998, Energy Select Sector SPDR Fund (NYSE:XLE) holds 23 stocks in its portfolio with $37.3 million in assets under management as of March 12, 2024, offering an expense ratio of 0.09%. Energy Select Sector SPDR Fund (NYSE:XLE) is one of the best energy ETFs to buy.

Exxon Mobil Corporation (NYSE:XOM) is the largest holding of the Energy Select Sector SPDR Fund (NYSE:XLE). In October 2023, Exxon Mobil Corporation (NYSE:XOM) announced an agreement to acquire Pioneer Natural Resources Company (NYSE:PXD) in an all-stock deal valued at $59.5 billion or $253 per share. On March 6, Exxon Mobil revealed that the acquisition is expected to close in the second quarter of 2024.

According to Insider Monkey’s fourth quarter database, 85 hedge funds were long Exxon Mobil Corporation (NYSE:XOM), compared to 79 funds in the last quarter.

Like First Solar, Inc. (NASDAQ:FSLR), Valero Energy Corporation (NYSE:VLO), and ConocoPhillips (NYSE:COP), Exxon Mobil Corporation (NYSE:XOM) is one of the best energy stocks to buy.

Here is what First Eagle Investments had to say about Exxon Mobil Corporation (NYSE:XOM) in its second-quarter 2022 investor letter:

“Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industry wide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.”

10. Fidelity MSCI Energy Index ETF (NYSE:FENY)

5-Year Share Price Performance as of March 14: 38.07%

Fidelity MSCI Energy Index ETF (NYSE:FENY) is one of the best energy ETFs to buy. Fidelity MSCI Energy Index ETF (NYSE:FENY) aims to track the performance of the MSCI USA IMI Energy 25/50 Index, which reflects the US energy sector’s performance. It’s a non-diversified fund launched on October 21, 2013. As of March 13, 2024, Fidelity MSCI Energy Index ETF (NYSE:FENY) has an expense ratio of 0.08% and net assets totaling $1.67 billion.

Chevron Corporation (NYSE:CVX) is one of the top holdings of Fidelity MSCI Energy Index ETF (NYSE:FENY). On February 2, Chevron Corporation (NYSE:CVX) declared a $1.63 per share quarterly dividend, a 7.9% increase from its prior dividend of $1.51. The dividend was paid on March 11.

According to Insider Monkey’s fourth quarter database, 71 hedge funds were bullish on Chevron Corporation (NYSE:CVX), compared to 72 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway is the leading stakeholder of the company, with 126 million shares worth $18.80 billion.

Carillon Eagle Growth & Income Fund stated the following regarding Chevron Corporation (NYSE:CVX) in its fourth quarter 2023 investor letter:

“Chevron Corporation (NYSE:CVX) traded lower, along with oil prices, and issued a disappointing earnings announcement due to overseas refining losses. Separately, the company announced an agreement to buy another energy company with operations offshore of Guyana, as well as in North Dakota, the Gulf of Mexico, and the Gulf of Thailand. This is a strategic acquisition for very little takeout premium.”

9. iShares Global Clean Energy ETF (NASDAQ:ICLN)

5-Year Share Price Performance as of March 14: 39.37%

iShares Global Clean Energy ETF (NASDAQ:ICLN) aims to mirror the performance of the S&P Global Clean Energy Index, which includes global equities in the clean energy sector. Launched on June 24, 2008, the ETF provides focused exposure to companies generating energy from solar, wind, and other renewable sources. As of March 13, 2024, iShares Global Clean Energy ETF (NASDAQ:ICLN) holds a portfolio of 101 stocks with net assets totaling $2.45 billion, featuring an expense ratio of 0.41%. iShares Global Clean Energy ETF (NASDAQ:ICLN) is one of the best performing energy ETFs to buy.

Enphase Energy, Inc. (NASDAQ:ENPH) is the largest holding of the iShares Global Clean Energy ETF (NASDAQ:ICLN). Enphase designs, manufactures, and sells home energy solutions for the solar industry worldwide. Enphase Energy, Inc. (NASDAQ:ENPH)’s President and CEO, Badrinarayanan Kothandaraman, purchased 4,000 common shares of the company on February 27, as disclosed in an SEC filing. Over the past year, Kothandaraman has engaged in multiple transactions, acquiring a total of 5,118 shares without selling any.

According to Insider Monkey’s fourth quarter database, 43 hedge funds were long Enphase Energy, Inc. (NASDAQ:ENPH), compared to 40 funds in the prior quarter. D E Shaw is a prominent stakeholder of the company, with 1 million shares worth $140.3 million.

Aristotle Atlantic Large Cap Growth Strategy stated the following regarding Enphase Energy, Inc. (NASDAQ:ENPH) in its fourth quarter 2023 investor letter:

“We sold our position in Enphase Energy, Inc. (NASDAQ:ENPH) due to slowing demand for residential solar energy, primarily driven by rising interest rates and potentially increasing competition. During the second quarter earnings report in July, the company lowered its guidance for the third quarter microinverter, and we believed there was a heightened risk that Enphase would lower guidance again. We remain optimistic about Enphase’s competitive advantages over the long term in the residential solar energy market, but we prefer to wait for more apparent evidence of a rebound before considering a reinvestment in the company.”

8. Vanguard Energy Index Fund ETF Shares (NYSE:VDE)

5-Year Share Price Performance as of March 14: 41.39%

Vanguard Energy Index Fund ETF Shares (NYSE:VDE) aims to replicate the performance of the Spliced U.S. Investable Market Energy 25/50 Index, which tracks the investment return of energy sector stocks. The fund employs passive management, utilizing full replication or sampling strategies based on regulatory constraints. The ETF, launched on September 23, 2004, includes companies involved in energy product exploration and production, such as oil, natural gas, and coal. With an expense ratio of 0.10%, Vanguard Energy Index Fund ETF Shares (NYSE:VDE) holds a portfolio of 115 stocks. Vanguard Energy Index Fund ETF Shares (NYSE:VDE) ranks 8th on our list of the best energy ETFs.

ConocoPhillips (NYSE:COP) is one of the largest holdings of Vanguard Energy Index Fund ETF Shares (NYSE:VDE). On February 8, ConocoPhillips (NYSE:COP) reported a Q4 non-GAAP EPS of $2.40, beating market estimates by $0.23. In the fourth quarter of 2023, production reached 1,902 thousand barrels of oil equivalent per day, marking an increase of 144 thousand barrels of oil equivalent per day compared to the same period last year.

According to Insider Monkey’s fourth quarter database, 59 hedge funds were long ConocoPhillips (NYSE:COP), compared to 62 funds in the last quarter. Boykin Curry’s Eagle Capital Management is the largest stakeholder of the company, with 13.3 million shares worth $1.5 billion.

Oakmark Select Fund made the following comment about ConocoPhillips (NYSE:COP) in its second quarter 2023 investor letter:

“ConocoPhillips (NYSE:COP) is one of the largest and most efficient exploration and production companies in the country. The company has an extensive resource base of high-quality drilling inventory in the U.S. and various international locations as well as a growing liquified natural gas business. In our view, the depth and quality of ConocoPhillips’s inventory is a competitive differentiator that is not fully captured in today’s share price. Over the next 10 years, we believe ConocoPhillips will be able to return more than 100% of its current market cap to shareholders via dividends and share repurchases while growing its production at a mid-single-digit annual pace. We believe ConocoPhillips is also among the best managed companies in the oil and gas industry and we are impressed by its history of accretive capital allocation under CEO Ryan Lance. The stock has meaningfully underperformed the broader market year-to-date and is an attractive addition to our portfolio.”

7. First Trust Natural Gas ETF (NYSE:FCG)

5-Year Share Price Performance as of March 14: 55.23%

First Trust Natural Gas ETF (NYSE:FCG) aims to mirror the performance of the ISE-Revere Natural Gas Index, which includes companies generating a significant portion of their revenues from natural gas exploration and production. Established on May 8, 2007, First Trust Natural Gas ETF (NYSE:FCG) holds a portfolio of 50 stocks and has an expense ratio of 0.60%. It is one of the best energy ETFs to buy.

Western Midstream Partners, LP (NYSE:WES) is the top holding of First Trust Natural Gas ETF (NYSE:FCG). Western Midstream Partners, LP (NYSE:WES) is a midstream energy company operating primarily in the United States. Its activities include gathering, compressing, treating, processing, and transporting natural gas, as well as handling condensate, natural gas liquids, crude oil, and produced water. Western Midstream Partners, LP (NYSE:WES)’s revenue increased 10.1% year-over-year to $858.21 million, beating market estimates by $2.97 million.

According to Insider Monkey’s fourth quarter database, 5 hedge funds were bullish on Western Midstream Partners, LP (NYSE:WES), same as the prior quarter.

Here is what Miller/Howard Investments has to say about Western Midstream Partners, LP (NYSE:WES) in its Q1 2021 investor letter:

“We increased our weight in Western Midstream Partners (WES) again this quarter, as it should benefit from higher oil prices that might lead to more drilling activity in the Permian and DJ basins.”

6. Invesco S&P 500 Equal Weight Energy ETF (NYSE:RSPG)

5-Year Share Price Performance as of March 14: 57.91%

Invesco S&P 500 Equal Weight Energy ETF (NYSE:RSPG) ranks 6th on our list of the best energy ETFs. Invesco S&P 500 Equal Weight Energy ETF (NYSE:RSPG) tracks the S&P 500® Equal Weight Energy Plus Index, which evenly distributes the weight of stocks in the energy sector of the S&P 500 Index. The ETF invests in companies involved in different aspects of oil, gas, coal, and consumable fuels, including exploration, production, refining, marketing, storage, transportation, and related services. Established on November 1, 2006, Invesco S&P 500 Equal Weight Energy ETF (NYSE:RSPG)’s portfolio comprises 25 stocks as of March 12, 2024, and it features an expense ratio of 0.40%.

Marathon Petroleum Corporation (NYSE:MPC) is the largest holding of the Invesco S&P 500 Equal Weight Energy ETF (NYSE:RSPG). Marathon Petroleum Corporation (NYSE:MPC) is an integrated downstream energy company operating primarily in the United States. On January 30, the company reported a Q4 non-GAAP EPS of $3.98 and a revenue of $36.82 billion, outperforming Wall Street estimates by $1.76 and $1.52 billion, respectively.

According to Insider Monkey’s fourth quarter database, 50 hedge funds were bullish on Marathon Petroleum Corporation (NYSE:MPC), compared to 48 funds in the last quarter. Paul Singer’s Elliott Management is the largest stakeholder of the company, with 11 million shares worth $1.6 billion.

Like First Solar, Inc. (NASDAQ:FSLR), Valero Energy Corporation (NYSE:VLO), and ConocoPhillips (NYSE:COP), Marathon Petroleum Corporation (NYSE:MPC) is one of the best energy stocks to invest in.

Click to continue reading and see 5 Best Energy ETFs: Top Oil, Gas and Renewable Energy Funds.

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Published on May 1, 2024 at by Inan Dogan, PhD

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