Energy ETFs allocate their investments towards companies operating within the energy industry.
These corporations may be involved in the exploration, extraction, or dissemination of energy resources, including but not limited to oil, natural gas, and coal, as well as renewable sources such as wind and solar power.
Energy ETFs offer investors the opportunity to gain exposure to the energy industry as a whole, eliminating the need to individually select specific firms.
The current state of markets is once again being influenced by concerns about geopolitical strife.
The unexpected assault on Israel by Hamas, a militant Palestinian organization, on October 7th has heightened the likelihood of an expanded battle in a volatile region that holds significant importance as a major supplier of global oil.
The consequences of the conflict in Gaza, characterized by Israel’s declaration of war and its intention to eradicate Hamas, are currently extending beyond the immediate region and impacting global markets.
The increase in defense equities was a predicted response within the market, and it also had an impact on the energy sector. There was a significant increase in oil prices.
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What are Energy ETFs
An Energy ETF is an investment vehicle traded on an exchange that offers investors the opportunity to gain exposure to the energy sector.
Similar to other ETFs, energy ETFs aim to replicate the performance of a comprehensive sector index, commodity, sub-sector, or other assets by allocating investments in companies involved in the production and distribution of oil, gas, and alternative energy sources.
Investors can achieve risk diversification through the allocation of funds in energy ETFs, as these investment vehicles provide a means to access a wide array of investments without the need to individually select specific firms or sectors.
Shares of Energy ETFs can be acquired through an exchange in a manner similar to that of equities. In contrast to mutual funds, ETFs often do not impose sales charges, also known as loading, and generally have lower related expenses.
ETFs emerged as a prevalent investing option during the 1990s, garnering significant attention from consumers seeking to enhance portfolio diversification and mitigate risk.
Similar to mutual funds, ETFs offer investors the opportunity to gain exposure to a diversified portfolio of securities that mirror an underlying index, commodity, sub-sector, or asset.
ETFs operate in a manner akin to stocks, as they are traded on stock exchanges, hence enabling the acquisition of shares through a brokerage account.
Similar to mutual funds, they have the potential to be managed either actively or passively. Passively-managed ETFs are characterized by reduced costs, whereas the former option entails higher fees.
The energy sector constitutes a substantial component of the global economy and has a pervasive impact on nearly all industries.
The majority of investors that possess balanced portfolios have already established a certain level of investment in energy companies.
The significant presence of energy inside the broad market indices, such as the S&P 500, serves as empirical support for its substantial significance.
As previously said, energy ETFs are diversified investment vehicles that enable investors to gain exposure to the energy sector as a whole, thereby eliminating the need to make specific company selections.
Energy ETFs allocate their investments towards firms operating in the oil, gas, and alternative energy sectors.
These companies are engaged in various activities such as distribution, exploration, transportation, production, and manufacturing of energy and its associated goods.
Advantages of Investing in Energy ETFs
Energy ETFs offer investors a wide range of exposure to the energy market. A diversified portfolio of energy stocks can help mitigate the dangers of investing in a single energy firm.
Energy ETFs are an attractive investment opportunity since their expense ratios are often lower than those of actively managed mutual funds.
Capital growth is another benefit of investing in energy ETFs.
With a growing population comes a larger need for energy, which might mean more money in the pockets of energy firms and a better return on investment.
Risks of Investing in Energy ETFs
The volatility of energy ETFs is a major concern for investors.
Global events, such as political unrest, natural disasters, and shifts in government policy, have a significant impact on the energy sector.
As a result of these occurrences, the value of energy ETFs may vary, exposing investors to substantial losses.
The possibility of regulatory changes is another concern for investors in energy ETFs.
The regulatory climate for energy businesses is set to shift, potentially affecting their profitability and the value of energy ETFs, as governments around the world continue to focus on decreasing greenhouse gas emissions and moving to cleaner sources of energy.
What are the Best Energy ETFs
ALPS Clean Energy ETF (NYSE:ACES)
The ALPS Clean Energy ETF (NYSE: ACES) aims to match the CIBC Atlas Clean Energy Index’s performance.
The ETF offers investors the opportunity to participate in American and Canadian corporations that are engaged in the clean energy sector, which includes renewable energy sources and environmentally friendly technologies.
The ALPS Clean Energy ETF (NYSE: ACES) was introduced to the market on June 28, 2018. As of July 27, 2023, the fund’s net assets amount to $499.5 million, while its total expense ratio stands at 0.55%.
The ALPS Clean Energy ETF (NYSE: ACES) is regarded as a top-performing energy ETF worthy of close observation.
Tesla, Inc., a prominent entity listed on the NASDAQ stock exchange under the ticker symbol TSLA, holds a notable position within the ALPS Clean Energy ETF, which is listed on the New York Stock Exchange under the ticker symbol ACES.
Tesla, Inc. (NASDAQ:TSLA) announced its financial results for the second quarter on July 19.
The company reported non-GAAP earnings per share (EPS) of $0.91 and sales of $24.93 billion.
These figures are above the expectations of Wall Street analysts by $0.09 and $200 million, respectively.
Tesla has just disclosed its impressive achievement of setting a new delivery record during the second quarter of 2023.
The company successfully delivered a total of 466,140 vehicles, surpassing initial projections and exceeding market expectations.
Invesco WilderHill Clean Energy ETF (NYSE:PBW)
The Invesco WilderHill Clean Energy ETF (NYSE:PBW) mirrors the performance of an index composed of U.S. publicly traded companies focused on clean energy and conservation.
The ETF has an expense ratio of 0.62% and currently invests in 76 companies.
The organization first opened its doors on March 3, 2005. Among energy ETFs, Invesco WilderHill Clean Energy ETF (NYSE:PBW) ranks highly.
Invesco WilderHill Clean Energy ETF (NYSE:PBW) has a significant position in Rivian Automotive, Inc. (NASDAQ:RIVN), a leading American maker of electric vehicles.
During the second quarter of 2018, Rivian Automotive, Inc. (NASDAQ:RIVN)’s Illinois plant manufactured 13,992 automobiles and delivered 12,640 vehicles.
The shipment numbers were 11,300 units higher than expected, and the company is still confident it will meet its annual manufacturing goal of 50,000 automobiles.
Rivian Automotive, Inc. (NASDAQ:RIVN) is a promising company in the renewable energy sector, alongside First Solar, Inc. (NASDAQ:FSLR), Chevron Corporation (NYSE:CVX), and Enphase Energy, Inc. (NASDAQ:ENPH).
iShares Global Clean Energy ETF (NASDAQ:ICLN)
The goal of the iShares Global Clean Energy ETF (NASDAQ:ICLN), which invests in clean energy companies, is to match the performance of the S&P Global Clean Energy Index.
The fund’s inception date was June 24, 2008, and as of July 28, 2023, its net assets were approximately $4 billion.
The iShares Global Clean Energy ETF (NASDAQ:ICLN) invests in 101 different equities and charges an annual expense ratio of 0.40%. It’s a top pick among energy ETFs.
The largest holding of the iShares Global Clean Energy ETF (NASDAQ:ICLN) is in First Solar, Inc. (NASDAQ:FSLR).
The photovoltaic solar energy solutions provided by First Solar, Inc. (NASDAQ:FSLR), are available in a number of different nations.
The firm’s primary focus is on the development, production, and distribution of solar modules made of cadmium telluride.
Quarterly GAAP earnings per share (EPS) of $1.59 and revenue of $811 million reported by First Solar, Inc. (NASDAQ:FSLR) on July 27 beat Wall Street projections by $0.65 and $91.59 million, respectively.
iShares U.S. Oil & Gas Exploration & Production ETF (CBOE:IEO)
The iShares U.S. Oil & Gas Exploration & Production ETF (CBOE:IEO) seeks to replicate the investment results of the Dow Jones U.S. Select Oil Exploration & Production Index, which comprises equities from the oil and gas exploration and production sector.
The ETF in question was initiated on May 01, 2006. As of June 30, 2023, the investment in question had a 30-day SEC yield of 3.73% and was associated with an expense ratio of 0.39%.
The iShares U.S. Oil & Gas Exploration & Production ETF (CBOE:IEO) is considered to be a highly favourable option for investment among energy ETFs.
One notable component of the iShares U.S. Oil & Gas Exploration & Production ETF (CBOE:IEO) is EOG Resources, Inc. (NYSE:EOG), a corporation involved in the activities of exploring, developing, producing, and marketing crude oil, natural gas, and natural gas liquids.
The primary operational areas of the corporation are located in Texas, New Mexico, and the Republic of Trinidad & Tobago.
Based on the first quarter database of Insider Monkey, it has been observed that 41 hedge funds exhibited a positive outlook towards EOG Resources, Inc. (NYSE:EOG).
Notably, Harris Associates emerged as the leading stakeholder, possessing a significant holding of 7.2 million shares valued at $828 million.
First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN)
The primary objective of the First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN) is to attain outcomes that are in accordance with the Nasdaq Clean Edge Green Energy Index.
This index comprises ordinary stocks and depositary receipts of small, mid, and large-cap corporations that are publicly traded on U.S. securities exchanges.
The ETF was established on February 8, 2007, and now maintains a portfolio consisting of 63 equities. Additionally, it is accompanied with an expense ratio of 0.58%.
The First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN) is considered to be a highly favourable energy ETF for investment purposes.
Albemarle Corporation, listed on the New York Stock Exchange under the ticker symbol ALB, holds a significant position within the First Trust NASDAQ Clean Edge Green Energy Index Fund, which is traded on the NASDAQ under the ticker symbol QCLN.
Albemarle Corporation (NYSE:ALB) is a company that focuses on the research, production, and promotion of tailored speciality chemicals.
The company functions within three primary sectors, namely Lithium, Bromine, and Catalysts. Albemarle Corporation (NYSE:ALB) announced a quarterly dividend of $0.40 per share on July 18, consistent with its prior dividend payments.
The dividend will be disbursed on October 2nd, to stockholders who are officially registered as of September 15th.
Final Thoughts
ETFs focused on the energy industry are a common choice for investors. There are substantial dangers, such as volatility and regulatory changes, connected with investing in these ETFs, despite the fact that they offer the possibility of financial appreciation and diversification.
Therefore, before putting money into energy ETFs, investors should carefully assess their investment objectives and level of comfort with risk.
Investors might also think about index funds and ETFs focused on renewable energy.
Private banking clients seeking to diversify their portfolios often consider investment funds, such as the best energy ETFs, best airline ETFs, best defense ETFs, and best artificial intelligence ETFs, to achieve a well-rounded and strategic approach to their financial goals.
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