Investing in the energy sector ETFs

Updated: Jan 15

FS&P Energy sector outperformed S&P Index in 2021 reaching 53%, although it produced a negative return in 2021 (-32% including capital gains and dividends). It's worth mentioning that the energy sector is mostly oil and gas stocks. In fact, most renewable energy stocks are in the technology sector (like SolarEdge Technologies or Enphase Energy), the utility sector (like NextEra Energy or Brookfield Renewable), or the industrial sector (like Siemens, General Electric, Vestas, or TPI Composites). The energy sector did so well in 2021 as the oil& gas stocks were very cheap at the beginning of the year 2021 after the 2020 economic decline.

ETF selection methodology

Our methodology for selecting the best growth ETFs from the energy sector considered several factors. Be began with selecting from the universe of over 41,000 ETFs the subset of 67 thematic Energy ETFs. The majority of those ETFs have the dominance of the investments in the energy sector with over 95% except the followings:

  1. FNX, First Trust Energy AlphaDEX Fund: 87%;

  2. NANR , SPDR S&P North American Natural Resources ETF: 47%;

  3. EMLP, First Trust North American Energy Infrastructure: 46%;

  4. HAP, VanEck Vectors Natural Resources ETF: 22%.

The ETF with negative performance indication in the graph above is Microsectors U.S. Big Oil Index -3X Inverse Leveraged ETF with 3x exposure to the modifications of the market-cap-weighted indexes in the semiconductor industry. Investing in such ETFs is recommended only for the short term, for hedging purposes during the bearing market trends.

Thus the selection of 67 growth funds, narrowed to the list to 20 thematic energy sector universe with substantial investment in the energy sector. Then we considered the index tracked by each fund, 1-, 3- and 5-year returns. Some of the funds with the highest 1-year return cannot be considered as their 3- and 5-year performances are very bad.

We select the top