Oil ETFs are the exchange-traded funds that invest in the stocks of oil companies. They are simple and effective avenues to become a part of the oil markets without taking too much risk.
Oil is a highly volatile commodity with big swings both on a short-term and long-term basis. Therefore, it becomes extremely risky to invest directly in oil stocks. Especially for beginners who do not have in-depth knowledge of the oil markets, oil stocks can lead to massive losses.
This is when oil ETFs come to the rescue. They allow investors to buy into the dynamic oil markets, without a lot of risk exposure.
Factors to Consider Before Investing in Oil ETFs
Investors must consider that the oil sector is very volatile, and it is largely affected by economic, political, and government factors. Oil ETFs are also impacted by the demand-supply dynamics, oil prices, and government policies.
Therefore, despite being less risky than investing in oil through futures contracts and oil stocks, oil ETFs have high-risk exposure. Overall, oil ETFs follow a high-risk high-reward profile, with strong potential for long-term gains.
Which Oil ETFs Should I Buy?
Various types of oil ETFs trade on the US stock exchanges. Some invest in futures contracts of oil while others invest in forward and swap contracts. Among the multiple options, we have aggregated a list of the best oil ETFs for investors.
Investors must choose oil ETFs with average yields as both very high and very low yields are not sustainable. Additionally, investors must consider the price, average volume, and assets under management.
The fee charged by the fund or the net expense ratio is also a significant factor in determining which oil ETFs to buy. The choice of oil ETFs will also vary with the risk appetite of investors.