Back to top

Image: Bigstock

Here's Why Energy ETFs Are Sizzling With Opportunities

Read MoreHide Full Article

Investors have been closely tracking the energy sector, which has been showing strength as the global demand and economic growth levels are on the path of recovery from the pandemic-led slump.

In fact, 10 out of 11 S&P sectors were in the negative territory while the energy sector was positive with more than a 9% rise in September. The coronavirus vaccine rollout is gradually helping control the spread of the outbreak across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.

Consequently, the energy sector has been attracting investors’ attention on the latest rally in oil prices. The price of crude has reached a seven-year high level. Notably, shrinking crude inventories, supply disruption in the Gulf of Mexico following a couple of hurricanes and surging fuel demand are pushing oil prices higher.

The Organization of the Petroleum Exporting Countries (OPEC) and a Russia-led group of oil producers, collectively called OPEC+, have decided to raise production by 400,000 barrels a day each month. Notably, the group has decided to adhere to its previously agreed plan of slowly returning production to pre-pandemic levels. Market pundits were estimating higher production rise from OPEC+ considering the oil price’s persistent rise. However, the group’s decision to continue increasing production in measured steps has majorly led WTI crude to trade at more than $78 a barrel.

In this regard, analysts at CBA have noted that "OPEC’s outlook suggests further reductions in global oil stockpiles. That’s a problem given that oil inventories are already low," per a Reuters article.

The progress in coronavirus vaccine rollout presents a strong case, favoring a faster return to normalcy and economic recovery. The FDA has approved the emergency use of a booster dose of the Pfizer Inc. (PFE) and BioNTech SE (BNTX) COVID-19 vaccine. President Joe Biden has also outlined an effective plan to accelerate the vaccination rate and control the coronavirus outbreak. He has made it mandatory for federal employees to get COVID-19 vaccination, per a CNBC article.

In another positive development, the optimism surrounding the news highlighting positive updates on Merck (MRK) and Ridgeback Biotherapeutics’ investigational oral antiviral medicine, molnupiravir, can support the sector. The update supports the spaces expected to gain from the reopening of economies as molnupiravir will help fight against COVID-19, if approved by the FDA.

Energy ETFs to Watch Out For

Against the bullish energy sector backdrop, let’s take a look at some energy ETFs that are worth adding to your portfolio for boosting returns:

Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report)

The fund seeks to track the performance of the Dynamic Energy Exploration & Production Intellidex Index. With AUM of $102.7 million, the fund has an expense ratio of 63 basis points (bps) (read: 5 Best ETFs & Stocks of the Top Performing Energy Sector).

Vanguard Energy ETF (VDE - Free Report)

The fund seeks to track the performance of the MSCI US Investable Market Energy 25/50 Index. With AUM of $5.37 billion, the fund charges 10 bps in fees (read: 5 Top-Ranked ETFs That Outperformed the Market in September).

Fidelity MSCI Energy Index ETF (FENY - Free Report)

The fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Energy Index. It has AUM of $965.8 million and charges a fee of 0.08% (read: Energy ETFs to Gain on Upbeat Exxon, Chevron Q2 Earnings).

The Energy Select Sector SPDR Fund (XLE - Free Report)

The fund seeks to provide investment results, before expenses, that generally correspond to the price and yield performance of the Energy Select Sector Index. With AUM of $26.98 billion, the fund has an expense ratio of 0.12% (read: ETF Asset Report of September).

iShares U.S. Energy ETF (IYE - Free Report)

The fund seeks investment results that generally correspond to the price and yield performance of the Russell 1000 Energy RIC 22.5/45 Capped Gross Index. It has AUM of $2.38 billion and charges a fee of 0.41%.