The energy market is growing rapidly to cater to expanding global demand in varied markets and segments, opening solid investment opportunities. In this market dynamic, investing in energy equities ETFs can offer wide exposure to diverse companies engaged in the energy sector and lower the risk of investing in individual stocks.

Given this backdrop, investing in fundamentally sound energy ETFs, The Energy Select Sector SPDR Fund (XLE), Fidelity MSCI Energy Index ETF (FENY), and Vanguard Energy Index Fund ETF Shares (VDE) could be wise to hedge against inflation.

Energy ETFs can hedge against inflation by benefiting from rising energy prices and offering exposure to real assets. Diversified options, including oil, gas, and renewables, make them attractive amid inflationary pressures.

With the ongoing robust demand for energy resources like oil and gas, energy companies have become more attractive for investors looking to invest in this robust sector. The energy sector is expanding rapidly with growing extraction activities, adoption of advanced technologies, and growing needs across diverse segments.

According to EIA’s short-term energy outlook, global oil production is expected to increase by 1.6 million barrels per day (b/d) in 2025, and over 90% of its growth is projected to be drawn from countries that non-OPEC+. Brent crude oil spot price is likely to average $74 per barrel for the year. Further, the U.S. benchmark Henry Hub spot price is expected to average about $3.00/MMBtu for the winter heating season.

Investors looking to capitalize on the energy industry’s future prospects can invest in energy ETFs. The energy ETFs will offer investors exposure to the energy sector across sub-sectors, commodities, or other assets by investing in oil, gas, and alternative energy companies. Also, it will diversify their risk and give a broad range of investments without choosing individual companies.

Given these encouraging trends, let’s look at the fundamentals of the top three Energy Equities ETFs, beginning with number 3.

ETF #3: The Energy Select Sector SPDR Fund (XLE)

XLE was launched by State Street Global Advisors, Inc. and is managed by SSGA Funds Management, Inc. The ETF invests in the public equity markets, focusing on the stocks of companies operating in the energy sector and targeting growth and value stocks. It seeks to track the performance of the Energy Select Sector Index using a full replication technique.

The fund has assets under management (AUM) of $33.08 billion. XLE’s top holdings include Exxon Mobil Corporation (XOM) with a 22.99% weighting, followed by Chevron Corporation (CVX) at 15.33%, and ConocoPhillips (COP) and Williams Companies, Inc. (WMB) at 8.05% and 4.65%, respectively.

The ETF has a total of 48 holdings, with its top 10 assets comprising 111.15% of its AUM. XLE’s expense ratio is 0.09%, lower than the category average of 0.47%.

XLE pays an annual dividend of $2.88, which translates to a yield of 3.32% at the current price level. The company’s dividend payouts have increased at a CAGR of 7.2% over the past three years. XLE has paid its dividends for 25 consecutive years.

XLE has surged 2.3% over the past year to close the last trading session at $86.66. The fund’s NAV was $86.65 as of January 2, 2025.

XLE’s POWR Ratings reflect solid prospects. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

XLE has a B grade for Buy & Hold. Within the Energy Equities ETFs group, it is ranked #13 of the 46 ETFs.

To access all XLE’s POWR Ratings, click here.

ETF #2: Fidelity MSCI Energy Index ETF (FENY)

FENY invests in the U.S. energy stocks, including many of the world’s largest oil producers. The fund’s portfolio is broad and allocates funds to every aspect of the oil and gas industries, including some allocations dedicated to coal and renewables. It tracks the MSCI USA IMI Energy 25/50 Index.

With $1.46 billion in AUM, FENY’s top holdings are XOM with a 21.54% weighting, CVX at 13.40%, and COP and EOG Resources, Inc. (EOG) at 6.86% and 3.73%, respectively. The ETF has a total of 214 holdings, with its top 10 assets comprising 98.24% of its AUM. The fund has an expense ratio of 0.08%, lower than the category average of 0.47%.

FENY pays an annual dividend of $0.73, which translates to a 3.01% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 9.1% over the past three years. FENY has paid dividends for 11 consecutive years.

FENY has gained 3.8% over the past year to close the last trading session at $24.16. The fund’s NAV was $24.17 as of January 2, 2025.

FENY’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of B, equating to a Buy in our proprietary rating system.

The fund has a B grade for Peer and Buy & Hold. Of the 46 ETFs in the Energy Equities ETFs group, FENY is ranked #6.

Click here to see all the FENY ratings.

ETF #1: Vanguard Energy Index Fund ETF Shares (VDE)

VDE offers broad-based exposure to the U.S. equity stocks in the energy sector. The fund invests in energy companies across multiple sub-industries from the broadly defined energy space. VDE seeks to track the performance of the MSCI US Investable Market Energy 25/50 Index.

The fund has an AUM of $7.43 billion. Its top holdings include XOM with a 22.74% weighting, followed by CVX at a 13.26% weighting, and COP and EOG at 6.63% and 3.65%, respectively. VDE has a total of 109 holdings, with the top 10 assets comprising 63.38% of its AUM.

The fund has an expense ratio of 0.10%, compared to the category average of 0.47%.

VDE’s annual dividend of $3.92 translates to a 3.19% yield at the current price level. Further, the fund’s dividend payouts have increased at a CAGR of 6.9% over the past three years and 7.1% over the past five years. VDE has paid its dividends for 18 consecutive years.

VDE has gained 3.7% over the past year to close the last trading session at $122.78. The fund has a NAV of $122.77 as of January 2, 2025.

VDE’s POWR Ratings reflect its strong outlook. The ETF has an overall rating of B, which translates to a Buy in our proprietary rating system.

VDE has a B grade for Buy & Hold and Peer. The fund is ranked #3 among the 46 ETFs in the same group.

To access all the POWR Ratings for VDE, click here.

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XLE shares were trading at $87.47 per share on Friday afternoon, up $0.81 (+0.93%). Year-to-date, XLE has gained 2.11%, versus a 1.00% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

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