Energy
Published by Radif Partners · Updated
Oil & Gas, integrated majors, traditional energy sector exposure
This page compares 9 funds in the Energy category, with ongoing charges from 0.09% to 0.46% and a median of 0.25%. The gap between the cheapest and the dearest is worth roughly €370 over ten years on €10,000 invested: for a comparable index, that is the most reliable difference between two funds, because it rests on no assumption about markets. 2 of the 9 funds are accumulating and 9 replicate their index by holding its securities, the others using a swap. The largest fund in the list is XLE, which matters less for returns than for the risk of closure: a fund that stays small usually ends up merged. Past performance is not used to rank this list: over the horizons published it says more about the index being tracked than about how the fund is run.
9
0.23%
+44.0%
0.09%
+57.8%
Energy Select Sector SPDR Fund
Utilities Select Sector SPDR Fund
Vanguard Energy ETF
SPDR S&P Oil & Gas Exploration & Production ETF
VanEck Oil Services ETF
iShares S&P 500 Energy Sector UCITS ETF USD (Acc)
Xtrackers MSCI World Energy UCITS ETF 1C
iShares STOXX Europe 600 Oil & Gas UCITS ETF (DE)
iShares MSCI World Energy Sector UCITS ETF USD (Dist)
Fossil and renewable energy do not follow the same cycle
Under the word energy, indices file two industries whose drivers oppose each other. Hydrocarbon producers are profitable when the barrel is expensive, so often when inflation rises and the rest of the market suffers: that is what gives them their role as a partial inflation hedge, confirmed in 2022 when the sector was the only one clearly up. Renewables, by contrast, are project businesses financed by debt: their value depends on the cost of capital, so a rise in rates hurts them directly, as also happened in 2022, but the other way round.
Two checks are therefore needed before buying. The first is actual composition: a conventional energy fund is heavily concentrated in a handful of integrated majors, a clean energy fund in solar and wind equipment makers that are often loss-making. The second is yield: the fossil sector has historically paid high dividends, often four to six per cent, which the accumulating class reinvests and the distributing class pays out, with the tax that follows. These two kinds of asset therefore do not belong in the same place in a portfolio, nor for the same reason.
What the funds in this category show
Where the money actually sits
The category holds 9 funds and 82.3B in combined assets, and those assets are not spread evenly. Energy Select Sector SPDR Fund (XLE), run by SPDR, holds 39.1B on its own, and the three largest, Energy Select Sector SPDR Fund (XLE), Utilities Select Sector SPDR Fund (XLU) and Vanguard Energy ETF (VDE), account for 88.8 % of the total. At the other end, iShares MSCI World Energy Sector UCITS ETF USD (Dist) (WNRG) manages only 600M. Size is no guarantee of quality, but it decides two very concrete things: the spread between buying and selling price you pay on every order, and the odds that the fund still exists in ten years.
The fee gap, in money
Ongoing charges run from 0.09 % for Energy Select Sector SPDR Fund (XLE) to 0.46 % for iShares STOXX Europe 600 Oil & Gas UCITS ETF (DE) (EXH1), a gap of 0.37 points, against a category average of 0.23 %. On £10,000 held for ten years that gap is roughly 370 in extra charges, before counting the return that money would itself have earned. It is the one variable in the comparison known in advance: past performance does not repeat, fees repeat every year.
Two funds in one category do not hold the same basket
The 9 funds listed track 8 different indices, among them Energy Select Sector, Utilities Select Sector, MSCI US Investable Market Energy 25/50 and S&P Oil & Gas Exploration & Production Select Industry. The largest tracks Energy Select Sector. That spread is why two funds filed under the same theme can differ by several points over a year: they hold different securities, weight them differently and rebalance on different dates. Each fund page names its index, and that is where a serious comparison starts.
Replication and domicile
All 9 funds in the category replicate their index physically: they hold the securities. What remains to check is whether the fund lends those securities, which the key information document states, and how much: lending income lowers the real cost, counterparty risk adds to market risk.
5 of the 9 funds are domiciled in US, the rest in IE and DE. Domicile sets the withholding tax the fund itself suffers on the dividends it receives, a cost absent from the stated fee but present in the return, and it also sets your own tax treatment depending on where you live.
Accumulate or take the income
2 funds accumulate dividends, 7 pay them out. The largest accumulating share class is iShares S&P 500 Energy Sector UCITS ETF USD (Acc) (IUES), the largest distributing one Energy Select Sector SPDR Fund (XLE). The choice is not about yield, both versions of the same index return the same before tax, but about tax and discipline: the accumulating class reinvests with no cost and no decision, the distributing class pays income that is taxable in the year it arrives.
Age and critical size
The oldest fund in the category, Energy Select Sector SPDR Fund (XLE), launched on 1998-12-16, giving 28 years of history, and the newest, iShares MSCI World Energy Sector UCITS ETF USD (Dist) (WNRG), on 2019-11-13. A long record shows how the fund behaved in a fall, which no one-year number can. A fund launched two years ago has lived through a single market regime.
None of the 9 funds manages under 100 million, the smallest being iShares MSCI World Energy Sector UCITS ETF USD (Dist) (WNRG). The category is therefore clear of closure risk for want of size, the risk that forces a sale on the issuer's timetable rather than the holder's.
Frequently asked questions
What are energy ETFs?
Energy ETFs invest in oil & gas companies, including exploration, production, refining, and energy services. Major holdings include Exxon Mobil, Chevron, Shell, and TotalEnergies. Check the figure in the key information document of the exact share class your broker offers, since two classes of the same fund can differ on charges and on distribution policy.
Are energy ETFs a good hedge against inflation?
Energy ETFs have historically performed well during inflationary periods since oil and gas prices tend to rise with inflation. They can provide portfolio protection during commodity-driven inflation. What matters more than the ranking is whether the underlying index suits your horizon and your tolerance for a fall of thirty per cent, which no score can decide for you.
What is the ESG risk of energy ETFs?
Traditional energy ETFs have high carbon footprints and may face divestment pressure from ESG-focused investors. Some energy ETFs now include renewable energy companies to address ESG concerns. Past performance over these horizons says more about the index than about the fund, which is why the comparison here weighs cost, size and tracking quality instead.
Energy ETFs vs clean energy ETFs?
Traditional energy ETFs are more profitable and pay higher dividends. Clean energy ETFs have higher growth potential but are more volatile and less profitable. Many investors hold both for a diversified energy allocation. Over a ten-year horizon the ongoing charge weighs more than any difference in past performance: 0.20% against 0.50% on €10,000 is about €300, compounded.