Unleash the Power of Oil: 5 Top Energy ETFs Pro Picks

Crude oil prices have surged almost 30% since early December compared to 13.5% by the S&P 500.

The once oversupplied market faces a potential shortage in 2025.

And it’s got investors bidding up energy stocks like Exxon Mobil to their highest levels ever.

Naturally, everyone’s looking for the best way to cash in on this trend.

So, we turned to the pros to see which ETFs they were watching.

According to our TrackStar data, the SPDR Energy Select Sector ETF (XLE) landed at the top of the list by a mile.

We’re big fans of this ETF, which provides exposure to a diverse range of companies in the energy sector.

Although it’s had a fantastic run, we think there could be more upside in the near future.

Here’s why.

Key Facts About XLE

• Net assets: $41.5 billion
• 12-month trailing yield: 2.99%
• Inception: December 16, 1998
• Expense ratio: 0.09%
• Number of holdings: 25

The XLE is made up of 25 companies in the U.S. oil and gas sector, including those engaged in exploration and production (upstream), transportation (midstream), and refining and marketing (downstream). This also includes service and support companies like Halliburton (HAL).

Holdings are weighted based on market capitalization, allowing larger companies like Exxon Mobil and Chevron to account for nearly 40% of the portfolio.

Source: StateStreetGlobal

The XLE is one of the most popular energy ETFs out there. It has a history stretching back more than 20 years, over $40 billion in assets under management, and excellent liquidity in both stocks and options.

Performance

The performance of the XLE ETF is closely tied to the price of oil and natural gas and overall economic activity.

As such, it’s had a remarkable run in the past few months, gaining 9.6% in March alone.

Source: StateStreetGlobal

Forecasted crude oil supply shortages should further improve margins and share prices through 2024 and 2025.

Competition

While the XLE is one of the most popular and liquid energy ETFs, financial pros are also considering a few others listed below.

• iShares Global Energy ETF (IXC): The IXC is a market-cap weighted ETF like the XLE, except it has more international exposure from a broader set of companies.
• iShares U.S. Oil & Gas Exploration & Production ETF (IEO): Unlike the diversified XLE, the IEO focuses solely on upstream stocks from the Dow Jones U.S. Select Oil E&P  Index that live and die by crude oil and natural gas prices. It is also market cap weighted.
• SPDR S&P Oil & Gas Exploration & Production ETF (XOP): The XOP is the SPDR version of the IEO, except using the S&P indexes, and is equal-weighted.
• VanEck Vectors Oil Services ETF (OIH): Different from the others on this list, the OIH focuses on the oil service niche rather than the broader energy category.

It’s interesting to see how the market-cap-weighted IEO vastly outperforms the equal-weighted XOP, which is common in the energy complex.

Big companies tend to acquire smaller ones at advantageous prices, and they have the cash to invest in capital-intensive projects.

Our Opinion 10/10 

The XLE is our favorite energy ETF out there, with a solid history, a low expense ratio, and excellent liquidity.

Its diversification reduces volatility compared to owning E&P companies.

Plus, it pays a healthy dividend as well.

If you want exposure to the energy sector, you can’t go wrong with the XLE.