In 2022, oil and gas ETFs gained huge popularity. The Energy Select Sector SPDR Fund (XLE) delivered an impressive total return of 64%. In stark contrast, the S&P 500 experienced negative total returns.
Several factors contributed to the dominant performance of oil and gas ETFs in 2022. The escalation of Russia's conflict with Ukraine, increased travel demand, and various other catalysts caused U.S. crude oil prices to surge from approximately $75 at the beginning of the year to $120 throughout the year.
Today, the prices of oil have dropped back to where they were in 2021. Nobody can say for sure which way they'll go next, especially because oil prices can be so unpredictable. In our ETF Spotlight Series, we're going to reveal the best oil and gas ETFs out there. We'll also show you how you can invest in them while keeping the risks of price volatility in check.
Share’s Oil & Gas:
- Number of holdings: 14
- Fees: free
- Volatility: moderate (5-yr beta is 1.52)
- 5-yr return: N/A DCA: 64%
- Summary: If you are looking for a balance between return and risk, Share’s Oil & Gas strategy stands out. Share’s very own oil and gas strategy is unique in that there is no fee, and it has the fewest number of holdings. Share believes that many of the oil and gas ETFs are over diversified. Over-diversification can result in diminished profits and may not necessarily reduce your overall risk. Share’s concentrated, equal-weighting approach over 5 years creates a relatively equal distribution among 15 stocks, with all stocks representing between 5-10% of the overall portfolio. This means that each member of the strategy has an equal chance at providing returns (either positive, or negative).
How to invest in oil & gas ETFs:
Due to the high volatility of the oil prices, a method to consider when investing in an oil and gas ETF is through dollar cost averaging (DCA). DCA involves purchasing smaller amounts at consistent intervals, irrespective of the price. This strategy can help you achieve a favorable average price over time. Consequently, the returns obtained through DCA for the aforementioned ETFs are notably higher compared to traditional investment approaches.
Disclaimer: Investing involves risk and past performance does not ensure future results. The Share Invest mobile app is offered by Share Invest Inc., with brokerage services provided by Alpaca Securities LLC, and clearing services by Velox Clearing LLC and Vision Financial Markets LLC, all members of the Securities Investor Protection Corporation. Share and Alpaca are not affiliated and not responsible for each other's liabilities. Fractional share trading availability does not imply a recommendation or endorsement of securities, and transactions are executed through market orders during normal hours. For further inquiries, contact email@example.com.