Oil exchange-traded funds (ETFs) offer direct access to the oil market by tracking the price of oil as a commodity. This approach is different from investing in funds that own a portfolio of oil stocks. There is potential for significant returns through investing in the oil sector, but risks remain high amid the COVID-19 pandemic and the resulting massive disruption of economies worldwide.
Oil prices historically have been prone to quick, dramatic swings up and down. Oil ETFs provide investors a straightforward way to gain exposure to those price swings without having to buy and store the physical commodity or navigate the complexities of investing in oil futures contracts.
- Oil prices have dramatically outperformed the broader stock market over the past year.
- The oil exchange-traded funds (ETFs) with the best one-year trailing total return are DBO, BNO, and OILK.
- The top holdings of the first and third of these ETFs are futures contracts for West Texas Intermediate (WTI) sweet light crude oil, and the top holdings of the second are futures contracts for Brent Crude Oil.
There are currently six distinct oil commodity ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). Oil prices, as measured by the Bloomberg Crude Oil Subindex, have climbed by 51.8% over the past 12 months, significantly outperforming the S&P 500’s total return of 33.5%, as of Aug. 17, 2021. The best-performing oil ETF, based on performance over the past year, is the Invesco DB Oil Fund (DBO).
We examine the top three oil ETFs below. These ETFs focus on oil as a commodity rather than oil company stocks. All numbers below are as of Aug. 17, 2021.
Invesco DB Oil Fund (DBO)
- Performance Over 1-Year: 56.2%
- Expense Ratio: 0.78%
- Annual Dividend Yield: N/A
- 3-Month Average Daily Volume: 855,268
- Assets Under Management: $444.8 million
- Inception Date: Jan. 5, 2007
- Issuer: Invesco
DBO is structured as a commodity pool, a private investment structure that combines investor contributions to trade the futures and commodities markets. The ETF aims to track changes in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return plus interest income from holdings of U.S. Treasury securities and money market income, less the fund’s expenses.
The index follows a rules-based methodology and is composed of futures contracts on West Texas Intermediate (WTI) light sweet crude oil. DBO invests in futures contracts for WTI, providing exposure to changes in the price of crude oil. The fund is suitable for investors looking to make speculative bets on the price of oil and who have a high tolerance for the risks associated with volatile markets.
United States Brent Oil Fund (BNO)
- Performance Over 1-Year: 52.8%
- Expense Ratio: 1.13%
- Annual Dividend Yield: N/A
- 3-Month Average Daily Volume: 768,043
- Assets Under Management: $267.2 million
- Inception Date: June 2, 2010
- Issuer: Concierge Technologies
BNO is also a futures-based commodity pool, but unlike DBO above, it tracks the daily price movements of Brent Crude Oil rather than price changes in WTI. Brent Crude is the crude oil benchmark for the Europe, Middle East, and Africa (EMEA) region. Because Brent often trades at a different price from WTI, BNO can be a useful way of gaining alternative exposure.
BNO’s benchmark is its own Benchmark Oil Futures Contract, less expenses. The benchmark is a near-month futures contract that is traded on the ICE (Intercontinental Exchange) Futures Exchange. Its primary holdings are crude oil futures contracts and other oil-related futures contracts. BNO may also invest in forwards and swap contracts.
ProShares K-1 Free Crude Oil Strategy ETF (OILK)
- Performance Over 1-Year: 52.7%
- Expense Ratio: 0.67%
- Annual Dividend Yield: 5.13%
- 3-Month Average Daily Volume: 35,957
- Assets Under Management: $69.2 million
- Inception Date: Sept. 26, 2016
- Issuer: ProShares
OILK seeks to track the Bloomberg Commodity Balanced WTI Crude Oil Index, which is composed of crude oil futures contracts. Unlike some other oil ETFs, the ETF does not aim to track the performance of the spot price of WTI crude oil, and indeed may perform very differently.
Rather, like the target index, it aims to track the performance of three separate contract schedules for WTI crude oil futures. The fund invests in futures contracts on WTI sweet light crude oil.
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