Exchange-traded funds (ETFs) hold a collection of securities—such as stocks—that often track an underlying index. While they are similar to mutual funds in some ways, ETFs are different in that they are listed on exchanges and can be traded throughout the day like traditional stocks.
In recent years, ETFs have become immensely popular with investors for two major reasons:
- They provide an easy access point to a wide variety of sectors, industries, and strategies.
- They tend to minimize many of the risks inherent in investing in individual stocks.
- The best exchange-traded funds (ETFs) by one-year trailing total returns have dramatically outperformed the broader market over the past year.
- The ETFs with the best one-year trailing total returns are PXE, IEO, and FCG.
- The top holding of the first two funds is ConocoPhillips, while the top holding of the third is DCP Midstream LP.
All three of the top-performing ETFs are linked to energy commodities that have dramatically outperformed the S&P 500 Index over the past year. These aren’t formal benchmarks, but oil and natural gas have returned 49.4% and 53.6% as measured by the Bloomberg Composite Crude Oil Subindex and the Bloomberg Natural Gas Subindex, respectively. The S&P 500 has provided a total return of -10.7% over the past 12 months, as of Sept. 13, 2022.
The performance of these energy-related commodity ETFs has been driven by a number of forces, including the spike in oil, natural gas, and gasoline prices following increased demand in post-COVID economic reopening across the world. Also, OPEC+ has been slow to increase the supply of oil. Natural gas prices have been exceptionally turbulent this year.
The best-performing ETF, based on performance over the past year, is the Invesco Dynamic Energy Exploration & Production ETF (PXE). In order to focus on the funds’ investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
We examine the best three ETFs below. All numbers below are as of Sept. 13, 2022.
- Performance Over One Year: 84.0%
- Expense Ratio: 0.63%
- Annual Dividend Yield: 1.69%
- Three-Month Average Daily Volume: 294,228
- Assets Under Management: $300.4 million
- Inception Date: Oct. 26, 2005
- Issuer: Invesco
PXE is a multi-cap blended fund that tracks the Dynamic Energy Exploration & Production Intellidex Index. The index includes approximately 30 U.S. companies that are engaged in the exploration and production of oil, natural gas, and other resources. The stocks are chosen based on factors including earnings momentum, price momentum, management actions, and value. The portfolio includes oil refineries and companies that gather and process natural gas and natural gas liquids (NGL). The fund’s portfolio is fairly evenly distributed across large-, mid-, and small-cap stocks.
The top three holdings for PXE include ConocoPhillips (COP), Diamondback Energy Inc. (FANG), and Continental Resources Inc. (CLR). All three are energy companies involved in the exploration and production of oil, gas and other resources.
- Performance Over One Year: 81.9%
- Expense Ratio: 0.39%
- Annual Dividend Yield: 1.96%
- Three-Month Average Daily Volume: 288,523
- Assets Under Management: $1.0 billion
- Inception Date: May 1, 2006
- Issuer: BlackRock Financial Management
IEO tracks the Dow Jones U.S. Select Oil Exploration & Production Index, which is comprised of U.S. equities within the oil and gas exploration and production sector. The market-cap-weighted ETF provides exposure to companies engaged in exploration, production, and distribution. Exploration and production companies receive the largest exposure, accounting for nearly 75% of the portfolio, followed by companies involved in refining, marketing, and transportation. IEO follows a blended strategy, investing in a mix of growth and value stocks with various market capitalizations.
The top three holdings for IEO include ConocoPhillips; EOG Resources Inc. (EOG), and Pioneer Natural Resources Co. (PXD), all three of which are energy companies involved in the exploration and production of oil, gas and other resources.
- Performance Over One Year: 78.8%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.58%
- Three-Month Average Daily Volume: 1,317,022
- Assets Under Management: $966.2 million
- Inception Date: May 8, 2007
- Issuer: First Trust
FCG tracks the ISE-Revere Natural Gas Index, which is composed of companies that generate a significant amount of their revenue from natural gas exploration and production. The ETF provides exposure to the natural gas industry, which provides fuel source for residential, industrial, and commercial uses. More than 98% of the portfolio is allocated to energy stocks, with less than two percent allocated to utilities. Like IEO above, FCG follows a blended strategy and invests in stocks across the market capitalization spectrum and in both the value and growth categories.
The top three holdings for FCG include DCP Midstream LP (DCP), a midstream company company focused on energy logistics, gathering, and processing as well as producing NGLs; Western Midstream Partners LP (WES), a midstream company focused on crude oil and natural gas; and ConocoPhillips.
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