What is An ETFs (Exchange Traded Funds)?
What is An ETFs (Exchange Traded Funds)?
ETFs, or Exchange-Traded Funds, are investment funds that are traded on stock exchanges, similar to individual stocks. ETFs are designed to track the performance of a specific index, such as a stock index or a bond index. They hold a diversified portfolio of securities, such as stocks, bonds, or commodities, aiming to replicate the performance of the underlying index they are linked to.
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One of the key features of ETFs is their ability to offer investors a convenient and cost-effective way to gain exposure to a broad range of assets or markets. They provide diversification, as the ETFs hold a basket of different securities within a single fund. This diversification helps to spread the investment risk across multiple assets.
ETFs are bought and sold throughout the trading day on stock exchanges, and their prices fluctuate based on the supply and demand in the market. Investors can buy or sell ETF shares at market prices, similar to stocks. This provides flexibility and liquidity, allowing investors to enter or exit their positions at any time during the trading day.
ETFs have gained popularity due to their transparency, low expense ratios, and tax efficiency compared to traditional mutual funds. They have become a popular investment option for both individual investors and institutional investors seeking exposure to various asset classes and market sectors.
Key TakeAway
- The utmost performing exchange-traded funds (ETFs) based on their one-year trailing total returns have exhibited a remarkable level of outperformance compared to the broader market during the previous year.
- The ETFs that have showcased the most outstanding one-year trailing total returns are PXE, IEO, and FCG.
- ConocoPhillips stands as the primary holding for both the first two funds, whereas DCP Midstream LP holds the prominent position in the third ETF.
There exists a total of 1,719 ETFs that engage in trading activities within the confines of the United States, as reported by VettaFi. This figure excludes leveraged and inverse funds, as well as those with Assets Under Management (AUM) below $50 million.
The trio of highest-performing ETFs are associated with energy commodities, which have exhibited remarkable outperformance compared to the S&P 500 Index during the preceding year. Although these commodities are not officially recognized benchmarks, crude oil and natural gas have yielded returns of 49.4% and 53.6% respectively, as measured by the Bloomberg Composite Crude Oil Subindex and the Bloomberg Natural Gas Subindex. Conversely, the S&P 500 has delivered a total return of -10.7% over the past 12 months, up to Sept. 13, 2022.
The surge in oil, natural gas, and gasoline prices, driven by heightened demand during the post-COVID economic recovery worldwide, has been one of the key factors propelling the performance of these energy-related commodity ETFs. Additionally, OPEC+'s reluctance to boost oil supply has contributed to this trend. Notably, natural gas prices have experienced considerable volatility throughout this year.
The Invesco Dynamic Energy Exploration & Production ETF (PXE) emerges as the best-performing ETF based on its performance in the previous year. To emphasize the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and securities purchased using proceeds from securities lending, except for rare cases where the cash portion is exceptionally significant. Below, we delve into the analysis of the three best-performing ETFs. All data presented is accurate as of Sept. 13, 2022.
Invesco Dynamic Energy Exploration & Production ETF (PXE)
- Performance Over One Year: 84.0%
- Expense Ratio: 0.63%
- Annual Dividend Yield: 1.69%
- Three-Month Average Daily Volume: 294,228
- Assets Under Management: $300.4 million
- Inception Date: Oct. 26, 2005
- Issuer: Invesco
PXE is a diversified resource fund that tracks the Dynamic Energy Exploration & Production Intellidex Index. The index comprises around 30 American corporations involved in the exploration and extraction of oil, natural gas, and other valuable assets. The stock selection criteria include factors such as earnings growth, price momentum, management decisions, and intrinsic value. The fund's holdings encompass oil refineries and companies engaged in natural gas and natural gas liquids (NGL) collection and processing. The portfolio is evenly allocated across large-cap, mid-cap, and small-cap stocks.
The top three positions in PXE consist of ConocoPhillips (COP), Diamondback Energy Inc. (FANG), and Continental Resources Inc. (CLR). All three companies are active in the energy sector and specialize in the exploration and production of oil, gas, and other valuable resources.
iShares U.S. Oil Exploration & Production ETF (IEO)
- Performance Over One Year: 81.9%
- Expense Ratio: 0.39%
- Annual Dividend Yield: 1.96%
- Three-Month Average Daily Volume: 288,523
- Assets Under Management: $1.0 billion
- Inception Date: May 1, 2006
- Issuer: BlockRock Financial Management
IEO tracks the Oil Exploration & Production Select Index, a benchmark consisting of U.S. equities operating in the oil and gas exploration and production sector. This market-weighted ETF offers exposure to companies involved in exploration, production, and distribution of energy resources. The majority of the portfolio, around 75%, is allocated to exploration and production firms, followed by companies engaged in refining, marketing, and transportation. IEO employs a diversified strategy, investing in a blend of growth and value stocks across different market capitalizations.
The top three holdings for IEO include ConocoPhillips, EOG Resources Inc. (EOG), and Pioneer Natural Resources Co. (PXD), all of which are energy companies specializing in the exploration and production of oil, gas, and other valuable resources.
First Trust Natural Gas ETF (FCG)
- Performance Over One Year: 78.8%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.58%
- Three-Month Average Daily Volume: 1,317,022
- Assets Under Management: $966.2 million
- Inception Date: May 8, 2007
- Issuer: First Trust
FCG tracks the Energy Solutions Index, which comprises companies primarily involved in natural gas exploration and production, deriving a significant portion of their revenue from this sector. The ETF offers exposure to the natural gas industry, a vital energy source for residential, commercial, and industrial applications. The portfolio is heavily weighted towards energy stocks, accounting for over 98% of the holdings, with a minimal allocation to utilities. Similar to IEO, FCG employs a blended investment strategy, investing in stocks across various market capitalizations, encompassing both growth and value categories.
The top three holdings for FCG include DCP Midstream LP (DCP), a midstream company focused on energy logistics, gathering, and processing, including the production of natural gas liquids (NGLs); Western Midstream Partners LP (WES), a midstream company specializing in crude oil and natural gas; and ConocoPhillips, an energy company involved in exploration and production of oil, gas, and other resources.
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