The exchange-traded funds that invest in the securities of energy companies, including natural gas, oil, and alternative energy companies. The exposure also consists of securities of the companies that produce and transport energy resources in both domestic and international markets, the ones that manufacture energy equipment, and certain utility operators.
With the considerable diversity in the energy sector, energy ETFs expose investors to a large variety of businesses, geographies, and assets. Therefore, energy ETFs are excellent additions to create a well-balanced investment portfolio. As the energy industry is a significant part of the global economy, energy ETFs also serve the purpose of hedging investments, curbing inflation, and spreading risks.
Factors to Consider Before Investing in Energy ETFs
Investors must consider the types of energy sources they would like to invest in. The selection of energy ETFs will largely depend on the kind of energy resources, varying from coal, natural gas, nuclear energy, renewable energy, and alternative sources of energy to a mixture of some or all.
Another significant factor to be considered is the expense ratio of the energy ETFs. The money that the ETFs use to cover their expenses should be as low as possible to generate high returns to investors.
Additionally, investors must also keep in mind that energy ETFs are volatile investments and get affected by shifts in demand and geopolitical events. Therefore, the overall economic and political environment must be taken into account before investing in energy ETFs.
Which Energy ETFs Should I Buy?
A vast number of energy ETFs trade on the US stock exchanges. Some follow a complete sector index, while others are focused on a specific sub-sector. We have shortlisted the best energy ETFs for investors to make their selection from.
Investors should buy the energy ETFs that go well with their overall investment goals. The selection should be based on individual risk tolerance, geographical exposure, sub-sector of interest, or a balanced mix of all. The expense ratios of energy ETFs should always remain a vital criterion before buying energy ETFs to generate high and stable returns on investment.