What are energy ETFs in India? All you need to know
In the previous article, we discussed bitcoin ETFs. In this article, we will discuss what are energy ETFs in India?
What are Energy ETFs?
An exchange-traded fund (ETF) that offers traders access to the energy industry is known as an energy ETF.
Like other exchange-traded funds, Energy ETFs invest in oil, gas, and alternative energy firms to track a broad sector index, sub-sector, commodity, or another asset.
The energy sector is a large portion of the global economy that affects almost every business. Practically every investor with a well-balanced portfolio has some exposure to energy firms.
The fact that energy comprises a significant representation in broad market averages such as the S&P 500 demonstrates its importance. Energy ETFs, as previously said, are security baskets that allow people to invest in the energy industry without having to pick specific firms.
Crude, gas, and alternative energy ETFs invest in firms participating in the discovery, production, distribution, haulage, and heavy industry of energy and related products, as well as those that are engaged in the discovery, manufacturing, distribution, logistics, and production of energy and associated products.
The MSCI World Energy index, for example, monitors all companies in the energy sector that are part of the MSCI World index. As a result, a global energy ETF allows you to invest in the world’s largest energy corporations.
Energy ETF shares, like stocks, can be acquired on a stock exchange. Unlike mutual funds, there is no loading on ETFs, and the fees are often lower. Energy ETFs with a specialized focus encompass various industries, locations, and risk profiles. Both conservative and adventurous investors have options.
The energy sector involves a highly complex and sophisticated network of enterprises producing and transmitting the energy required to power daily life and business.
Global energy supply and demand is a massive element in sector performance, yet demand isn’t static. When oil and gas prices are high, producers usually outperform, whereas they earn less when their value falls.
On the other hand, oil refiners can benefit from lower crude prices by lowering the cost of feedstock used to make petroleum products like gasoline.
However, one important thing to note here is that renewable energy producers and providers may not be factored in the energy sector; thus, clean energy ETFs can be used to invest in such businesses.
What are some benefits of investing in energy ETFs in India?
Energy ETFs offer access to various firms to invest in without requiring you to pick them individually. It is a bundle of energy assets helping you to avoid market risk, commodity price risk, and geopolitical risk, which are all risks connected with investing in the energy sector.
One can also select specialized ETFs based on investment objectives and specific requirements. For example, if users wish to invest in new kinds of energy, ETFs allow them to choose between clean energy ETFs and classic energy businesses that deal with petroleum, gasoline, and lignite.
Energy ETFs have $80.18 billion in assets under management, with 55 ETFs trading on US exchanges. The cost-to-income ratio is 0.68 per cent on average.
With $35.91 billion in assets, the Energy Select Sector SPDR Fund XLE is the largest Energy ETF. The best-performing Energy ETF in the previous year was NRGU, which returned 156.99 per cent.
On January 20, 22, the Direxion Daily Oil Services Bull 2X Shares ONG, the most recent ETF in the Energy industry, was launched.
Let’s now look at some top and bottom performers
Top ETF Performers according to etf.com
Bottom ETF Performers according to etf.com
ETFs provide diversification, but there are hazards that you need to take into account. Any specialized sector-based ETF, such as one that follows energy companies, might increase portfolio volatility, so doing due diligence before making any investment decisions is imperative.
Investors should read the prospectus, especially when dealing with volatile commodities like energy. It will provide a decent understanding of associated costs and the securities to which the ETF exposes you.