Opinions and Advice for Investing in This Sector

How to invest in Energy ETFs? Which are the best to include in the portfolio? The energy sector it is increasingly moving towards a green path.

This is what our planet, which has now reached the limit of exploitation, is asking of us, is being imposed by governments who try to give greater incentives to reduce harmful emissions and to make sure that pollution is reduced, and in a certain sense we have understood this for some time , and we are trying (some one way, some another) to do something in our small way to help save the planet.

I personally believe a lot in energy cleanand I also included some Green ETFs in the Megatrend portfolios that I created with the Centro Studi di Affari Miei.

Surely the “green revolution” which is increasingly spreading in the world in general does not leave too much room for fossil fuelseven if perhaps the very fact of being a sector left a little aside could reveal some interesting opportunities.

Furthermore, another reason that could interest investors is certainly that according to which companies that produce clean energy are relatively young, therefore more exposed to possible risks, while those operating in the global energy sector are certainly more stable.

Investing in the global energy sector when we are in a moment of transition, and everything around us reminds us to be sustainable and to help the planet, even by investing in renewable energies, could actually seem like a gamble.

Invest in ETFs from the point of view of costs it could prove to be a good tool, even in a sector that is perhaps a little “outdated” like this one.

Energy: what is it about?

When we refer to the energy sector we refer to those companies that operate in the energy sector in general (whether they are renewable or not).

In this case we are going to analyze global energies, since I have already dedicated an article to them renewable energies.

The energy sector has always been seen as slow to adapt to the various changes in the world, to take the path of revolution, and it has been defined as a conservative sector. Despite this, it has inevitably had to adapt in recent years.

A note: as far as companies in the energy sector are concerned, we must remember that one of the reasons that could lead to market shocks or in any case increases or unfavorable moments over time is certainly the price of the raw materials used for the purpose, primarily oil.

Oil price fluctuations are the order of the day, and its price is certainly a variable to monitor and take into consideration if we want to enter the energy sector market.

According to forecasts, in 2021 investments in exploration, drilling and extraction of hydrocarbons will remain unchanged, returning to pre-pandemic levels.

If you decide to make a investment in energy ETFs you will meet companies involved in the extraction, research and processing of fossil fuels.

But now let’s see which are the best ETFs in the sector.

The three best ETFs on Borsa Italiana

The ETFs we review are 3 Stock ETFs.

Xtrackers MSCI World Energy UCITS ETF

The first fund you see was launched in 2016, so it’s relatively recent, and has a large size of €1,096 million.

The MSCI World Energy index tracks the energy sector of developed markets from around the world.

I annual management costs for this fund they are 0.25%; it features a physical replication method, and a policy on accumulating dividends.

Il risk profile of the bottom is high, even a 7the maximum on the scale.

As for thesector allocation, most of the companies are engaged in the production and transportation mainly of oil and gas, and are 53.23%; most of the companies are from the USA, followed by those from Canada and the Netherlands.

iShares MSCI World Energy Sector UCITS ETF

The second fund I present to you also benchmarks the MSCI World Energy Index and tracks the energy sector of developed markets from around the world.

The ETF’s size is €354 million, which classifies it as an average fund; it was launched in October 2019so it’s a young fund.

The fund is characterized by a physical replication method and a policy on distribution dividendswith coupons being distributed every six months to investors.

His management cost per annum amounts to 0.25% and is domiciled in Ireland.

L’sector allocation sees companies that deal with energy, and which are mostly located in the United States (63.17%), Canada (11.41%) and the United Kingdom (10.93%).

has a risk profile maximum, equal to 7.

iShares Oil & Gas Exploration & Production UCITS ETF

The last fund we analyze is domiciled in Ireland and has an average size of €345 million and was launched in September 2011.

The index S&P Commodity Producers Oil & Gas Exploration & Production it tracks the largest publicly traded oil and gas exploration and production companies from around the world.

The ETF has a physical replication method, and a sui distribution policy accumulating dividends, which means that the proceeds are reinvested in the fund itself to take advantage of the power of compound interest.

Il management cost amounts to 0.55% per annum.

The fund has not currency hedgingand its risk profile And 7i.e. the highest.

L’geographical allocation of the index sees the USA as the first most represented country within the fund, with 68%, followed by Canada with 18.09% and Australia with 8.89%.

Should you invest in ETFs in the energy sector?

As I mentioned earlier, over the years we are talking about Green Energy, clean energy and whatnot, perhaps thinking of investing in a sector such as that of petrolium and gods fossil fuels it seems a bit of a gamble, like going against the tide.

Leaving aside the moral issues and responsibility which would certainly make us prefer an investment based more on clean energy, if we focus only on the investment itself, investing in the Global Energy sector would not seem to be so wrong.

For another few years, I think that oil will be able to keep us company, and at a time when the trend is precisely towards clean energy, and above all after many years in which there has been a general decline in this sector, it could itself be seen as an opportunity.

Another factor to consider is the industry maturityhowever, in the face of taking into account the risk associated with fluctuations in the price of oil on the market.

In fact, as we have seen by analyzing i 3 ETFthey all have a profile of very high risk, equal to 7i.e. the massimo on the risk scale.

It is true that, if there are no risks, there are also no possibilities of having returns, but one must always be careful when touching this key.

What I think is important to know before entering a similar sector is certainly to take into account the risk, consider the possibility of having gods higher yields in the face of a period that has been a bit subdued in the sector, and of course to diversify the portfolio to face similar risks, and also to “feel at peace with your mission to make the planet a better place”.

The best strategy, as I always say, is still that of diversification, especially if we are dealing with sectors that are particularly new (but this is not the case) or particularly risky (and these three ETFs seem rather risky to me, as we have seen).

Who would want only such risky instruments in their portfolio? Isn’t it better to diversify? Oil remains one of the cornerstones of the investment world, so the possibility of including one of these ETFs in your strategy cannot be ruled out.

The important thing is that the package we have built is varied, perhaps even including ETFs in clean energy!

Additional Resources

If you don’t know where to start investing, then here are some free resources to consult:

Good continuation!