VDE is a popular choice for energy exposure, and for good reason.
For investors seeking exposure to the energy sector, whether as long-term overweighting or a shorter-term tactical play, there are a number of options available. The 21 ETFs in the Energy Stock sub-category have nearly $25 billion in total assets, nearly half of which belong to the Energy Select Sector SPDR (XLE).
The Vanguard Energy ETF (VDE) has become a popular choice as well, thanks to a low expense ratio and a deep portfolio of stocks. Below are several charts that compare some of the most popular broad energy ETFs.
Expenses
Like many Vanguard funds, VDE is among the cheapest options for exposure to a particular sector. It’s matched by Fidelity’s energy ETF (FENY), and trailed closely by XLE.
As of August 2015.
Guggenheim’s RYE, which holds the same stocks as XLE but with an equal weight assigned to each, is a bit more expensive. IYE, which has more than $1 billion in assets, has the highest expense ratio among this group.
Depth of Holdings
The appeal of VDE relates in part to its portfolio; this ETF holds about 150 individual stocks, more than three times as many as XLE.
As of August 2015.
While FENY and VDE have considerably more holdings than other popular energy ETFs, their portfolios are similarly top-heavy. Given the nature of the energy industry — a few giant corporations at the top — these ETFs tend to have a significant portion of assets in just a few stocks.
As of August 2015.
This is where the equal weighting feature of RYE stands out; no single holding accounts for more than about 3 percent of assets, and the top 10 represent less than 30 percent of the total.
Among the other energy ETFs, the big allocations go to two companies in particular — Dow components ExxonMobil (XOM) and Chevron (CVX).
As of August 2015.
Again, RYE is the outlier here because it gives XOM and CVX the same base weightings as the other 39 holdings. VDE allocates about a third of its portfolio to these two stocks, similar to other energy products.
Best Energy ETF
For long-term exposure to the energy sector, VDE and FENY will be tough to beat. Both offer very low expense ratios and a relatively deep portfolio — even if a few stocks account for the bulk of total assets. These products are nearly identical; the choice may come down to the ability to trade commission free for those with Vanguard or Fidelity accounts.
For those seeking short-term tactical exposure, there may be value in a product such as RYE that is heavier in its allocation to small-cap names. XLE bridges the gap with a smaller allocation to ExxonMobil, and its 15 basis point expense ratio is very reasonable.
IYE is simply too expensive, and probably shouldn’t be used.
About the Author: Michael Johnston
Michael Johnston is senior analyst for ETF Reference, and also serves as COO of parent company Poseidon Financial. His investment expertise has been featured in The Wall Street Journal, Barron’s, and USA Today, among other publications. He resides in Chicago.
Comments