Best Energy ETFs to Watch in 2025

Below, we’ll examine a selection of popular and well-regarded Energy ETFs, highlighting their key characteristics to help you make informed investment decisions. We will consider factors such as expense ratios, top holdings, and reasons to consider each ETF.

• Expense Ratio: 0.09%
• Top Holdings: Exxon Mobil Corp., Chevron Corp., ConocoPhillips, Williams Cos Inc., EOG Resources Inc.
• Why Consider It? XLE is one of the largest and most liquid energy ETFs, tracking the Energy Select Sector Index. It provides concentrated exposure to the largest U.S. energy companies within the S&P 500, primarily integrated oil & gas giants. Its very low expense ratio makes it a cost-effective way to gain broad exposure to the titans of the traditional energy sector.

• Expense Ratio: 0.10%
• Top Holdings: Exxon Mobil Corp., Chevron Corp., ConocoPhillips, EOG Resources Inc., Williams Cos Inc.
• Why Consider It? VDE tracks a broader index (MSCI US Investable Market Energy 25/50 Index) than XLE, including large-, mid-, and small-cap U.S. energy stocks. While still dominated by the giants, it offers slightly more diversification across market caps. Its low expense ratio is very competitive, offering another excellent, cost-efficient option for broad energy exposure.

• Expense Ratio: 0.40%
• Top Holdings: Exxon Mobil Corp., Chevron Corp., ConocoPhillips, Williams Cos Inc., EOG Resources Inc.
• Why Consider It? IYE tracks the Russell 1000 Energy RIC 22.5/45 Capped Index, focusing on large- and mid-cap U.S. energy stocks. Its holdings are similar to XLE and VDE but derived from the Russell 1000 index. While its expense ratio is higher than XLE and VDE, it remains a popular and liquid option for investors comfortable with the iShares platform and the specific index methodology.

• Expense Ratio: 0.35%
• Top Holdings: CNX Resources Corp., Expand Energy, Exxon Mobil Corp., EQT Corp., Chevron 
• Why Consider It? XOP takes a different approach by tracking an equal-weighted index of companies in the oil and gas exploration and production sub-sector. This gives investors more balanced exposure across E&P companies, rather than being dominated by the integrated mega-caps. It tends to be more sensitive to oil and gas price movements than broader funds like XLE or VDE.

• Expense Ratio: 0.40%
• Top Holdings: Holdings are equally weighted across all energy sector constituents of the S&P 500. Top holdings by market cap (like Exxon, Chevron) will have similar weights to smaller S&P 500 energy companies.
• Why Consider It? RYE offers exposure to the S&P 500 energy sector but applies an equal-weighting methodology. This prevents the fund from being overly concentrated in the largest two or three names (like XLE). It provides broader exposure to the performance of mid-sized energy companies within the index, potentially offering different risk/return characteristics compared to market-cap weighted funds.

Selecting the most suitable Energy ETF requires thorough investigation. InvestingPro equips investors with the tools needed for detailed evaluation of Energy ETFs. With InvestingPro, you can:

• Dive into comprehensive analysis and key metrics for a vast range of ETFs, including the energy funds discussed.
• Conveniently compare critical data points such as expense ratios, historical performance (1-year, 5-year, etc.), dividend yields, and portfolio compositions side-by-side.
• Analyze sub-sector breakdowns (e.g., Integrated Oil & Gas, E&P, Equipment & Services), risk metrics, and volatility measures to match ETFs with your investment strategy and risk appetite.
• Utilize powerful screening tools to find other Energy ETFs based on specific criteria like expense ratio limits, performance benchmarks, or asset class focus.

Make more informed energy investment decisions by leveraging the extensive data and analytical power of InvestingPro.

Investing in Energy ETFs can be a strategic portfolio allocation, but consider these points:

• Diversification: Spreads investment across multiple companies within the energy sector, reducing individual company risk.
• Income Hedge Potential: Energy prices often correlate with inflation, potentially offering a hedge during periods of rising prices.
• Dividend Income: Many established energy companies pay dividends, which are passed through by the ETF, providing potential income.
• Exposure to a Critical Sector: Gains exposure to an industry essential for global economic activity.
• Simplicity: Offers an easy way to invest in the energy sector compared to buying futures contracts or numerous individual stocks.

• Commodity Price Volatility: Energy ETF performance is heavily influenced by the often volatile prices of oil and natural gas. A sharp decline in commodity prices can significantly impact returns.
• Regulatory and Political Risk: The energy sector is subject to significant government regulation, environmental policies, and geopolitical events that can affect company operations and profitability.
• Cyclical Nature: The energy sector is notoriously cyclical, experiencing booms and busts tied to economic cycles and supply/demand imbalances.
• Energy Transition Risk: The long-term global shift towards renewable energy sources poses a risk to the traditional fossil fuel industry that dominates most current energy ETFs.

Choosing the right Energy ETF requires careful analysis and consideration of several factors. Here are some essential steps to help you find the top Energy ETFs for your investment needs:

• Look beyond just the top names. Understand the sub-sector breakdown: Is it dominated by integrated giants (like XLE), focused on E&P (like XOP), or does it include midstream (pipelines) or energy services? Does the ETF use market-cap weighting or equal weighting (like RYE, XOP)? Ensure the composition aligns with the type of energy exposure you seek. Use InvestingPro to gain insights into sector allocation, top holdings, and diversification metrics.

• Lower expense ratios mean more of your money stays invested working for you. Energy ETFs range from very low-cost (like XLE, VDE) to moderately priced. Compare fees relative to the fund’s strategy and performance. Utilize tools like InvestingPro to efficiently assess and compare expense ratios across various Energy ETFs.

• Historical performance doesn’t predict the future but shows how the ETF behaved in past market environments (e.g., during oil price spikes or crashes). Check longer-term returns alongside short-term ones. Crucially, ensure the ETF has high daily trading volume (liquidity) for easy entry and exit without significantly impacting the price. Within InvestingPro, you can analyze detailed historical performance data and compare it against energy sector benchmarks and peer ETFs.

• Recognize the specific theme or strategy of the Energy ETF. Is it broad market exposure? Is it targeting a specific sub-industry like exploration & production? Is it using an alternative weighting scheme like equal-weight? Does it incorporate any ESG (Environmental, Social, Governance) factors or focus on cleaner energy (though the ETFs listed here are primarily traditional energy)? Match the theme to your investment goals.

An Energy ETF is an exchange-traded fund that invests primarily in the stocks of companies operating in the energy sector. This typically includes companies involved in discovering, producing, refining, storing, and transporting oil, gas, coal, and sometimes consumable fuels or energy equipment/services.

XLE is market-cap weighted and dominated by large integrated oil & gas companies (like Exxon, Chevron). XOP is equal-weighted and focuses specifically on exploration and production companies, giving more weight to smaller players in that sub-sector and often exhibiting higher volatility related to commodity prices.

Many traditional energy companies have a history of paying dividends, especially the large integrated firms. Consequently, broad energy ETFs like XLE and VDE often offer attractive dividend yields compared to the broader market, though these can fluctuate with industry profitability.

Key risks include volatility in oil and gas prices, geopolitical events disrupting supply or demand, increasing regulatory pressure related to climate change, and the ongoing long-term transition towards renewable energy sources potentially impacting demand for fossil fuels.

No, they don’t track oil prices directly like an oil futures ETF would. Energy ETFs hold stocks of energy companies. While the stock prices are heavily influenced by oil and gas prices (as it impacts their profitability), they are also affected by company management, operational efficiency, debt levels, refining margins, and overall stock market sentiment.