The demand-supply imbalance would push crude oil prices higher, propelling the energy industry’s prospects. Thus, top-performing energy equities ETFs First Trust Natural Gas ETF (FCG), iShares U.S. Oil & Gas Exploration & Production ETF (IEO), and iShares Global Energy ETF (IXC) could be ideal investments for sustainable returns.
World oil demand will rise by 2.44 million barrels per day (bpd) to average 102.1 million bpd in 2023, The Organization of the Petroleum Exporting Countries (OPEC) said in its Monthly Oil Market Report (MOMR). Developing economies, led by China, will account for most of this year’s demand growth. Further, global oil demand is expected to grow by 2.25 million bpd in 2024.
Moreover, U.S. natural gas output and demand will soar to record highs in 2023, the U.S. Energy Information Administration (EIA) said in its Short-Term Energy Outlook (STEO). EIA forecasts dry gas production to rise to 103.72 billion cubic feet per day (bcfd) in 2023 and 105.13 bcfd next year, compared to 99.60 bcfd last year.
The agency also projects domestic gas consumption to rise to 89.17 bcfd this year from 88.46 bcfd in 2022. It forecasts that electricity generation from natural gas will account for around 42% of U.S. generation this year, up from 39% in 2022.
Amid robust demand worldwide and constrained supplies, crude oil prices have remained higher for most of 2023. The Brent crude oil price averaged $94 per barrel in September, up $8/b from August and $19/b higher than in June.
In September, oil prices rose to a 9-month high on worries about constrained supplies after major global crude exporters Saudi Arabia and Russia extended their voluntary oil production cuts through the end of December 2023 and lowered U.S. commercial crude oil inventories.
EIA expects oil prices to rise in the coming months, reflecting its expectations of tightening balances in world oil markets. Also, fears of a broader conflict in the Middle East could disrupt oil supplies, putting upward pressure on prices. EIA forecasts the Brent crude oil spot price to average nearly $91/b in the fourth quarter of 2023.
In addition, the agency projects the Brent spot price next year to average $94.91/b, $6.69/b higher than in the prior month’s STEO.
According to Goldman Sach’s chief commodities strategist Jeff Currie, oil prices could tread as high as $100 per barrel in 2024. Currie said that a supply-demand imbalance in the oil market will likely worsen over the next year and push prices higher.
Given the industry tailwinds, it’s time to examine the fundamentals of the top three ETFs to watch in the B-rated Energy Equities ETFs group, starting with the third in line.
ETF #3: First Trust Natural Gas ETF (FCG)
FCG seeks to provide exposure to U.S. companies that derive a significant portion of their revenue from the exploration and production of natural gas. The fund selects companies involved in natural gas in some capacity, dedicating nearly 15% of its portfolio to MLPs and the remaining 85% to equities. It then applies linear cap-weighted rankings to each bucket.
FCG tracks the ISE-REVERE Natural Gas Index. It has assets under management (AUM) of $541 million. FCG’s top holdings include Hess Midstream LP Class A (HESM) with a 4.70% weighting, Western Midstream Partners, LP (WES) at 4.70%, followed by ConocoPhillips (COP) and EOG Resources, Inc. (EOG) with 3.77% and 3.63% weightings, respectively.
The fund has a total of 52 holdings, with its top 15 assets comprising 51.97% of its AUM.
The ETF has an expense ratio of 0.60% compared to the category average of 0.45%. Over the past three months, FCG fund inflows came in at $4.10 million. In addition, it has a beta of 1.96.
The fund pays an annual dividend of $0.83, translating to a 3.20% yield at the prevailing price level. Its dividend payouts have grown at a 54% CAGR over the past three years and a 33.9% CAGR over the past five years. The fund’s four-year average yield is 2.57%.
FCG has gained 2.3% over the past month and 13.2% over the past six months to close the last trading session at $25.97. Also, the fund has surged 12.1% year-to-date. It has a NAV of $25.96 as of October 31, 2023.
FCG’s POWR Ratings reflect this promising outlook. The fund’s overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The fund has an A grade for Trade, Peer, and Buy & Hold. Of the 46 ETFs in the B-rated Energy Equities ETFs group, FCG is ranked #3.
To access all FCG’s POWR Ratings, click here.
ETF #2: iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
IEO provides exposure to the oil & gas exploration and production segment. The fund tracks the Dow Jones U.S. Select Oil Exploration & Production Index. The underlying index includes U.S. companies of all market caps engaged in exploration and drilling, production, refining, and supply of oil and gas products.
With $910.30 million in AUM, IEO’s top holdings are ConocoPhillips (COP) with a 19.33% weighting, EOG Resources, Inc. (EOG) at 9.98%, and Marathon Petroleum Corporation (MPC) and Pioneer Natural Resources Company (PXD) at 8.02% and 7.61%, respectively. The fund has a total of 48 holdings, with its top 10 assets comprising 69.91% of its AUM.
The fund has an expense ratio of 0.40%, lower than the category average of 0.45%. IEO fund inflows were $222.96 million over the three months and $148.76 million over the past six months.
IEO pays an annual dividend of $2.97, which translates to a 3.07% yield at the current price level. The fund’s dividend payouts have grown at a 34.4% CAGR over the past three years and a 34.3% CAGR over the past five years. Its four-year average yield is 2.99%.
IEO has gained 13.2% over the past six months and 9.6% year-to-date to close the last trading session at $96.78. It has a beta of 1.62. The fund’s NAV was $96.76 as of October 31, 2023.
IEO’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade, Buy & Hold and Peer. Of the 46 ETFs in the Energy Equities ETFs group, IEO is ranked #2.
Click here to see all the IEO ratings.
ETF #1: iShares Global Energy ETF (IXC)
IXC seeks to track the investment results of an index composed of global companies in the energy sector that produce and distribute oil and gas. The fund tracks the S&P Global 1200 Energy 4.5/22.5/45 Capped Index.
IXC has an AUM of $2.87 billion. The fund has a total of 54 holdings, with its top 15 assets comprising 68.88% of its AUM. Its top holdings include Exxon Mobil Corporation (XOM) with a 15.88% weighting, Chevron Corporation (CVX) at 9.62%, and Shell Plc (SHEL) and TotalEnergies SE (TTE) with 8.24% and 5.80% weightings, respectively.
The fund has an expense ratio of 0.44%, lower than the category average of 0.45%. Over the past three months, IXC fund inflows came in at $1.10 billion and $1.04 billion over the past six months. Also, it has a beta of 1.13.
IXC pays an annual dividend of $1.81, translating to a 4.58% yield at the current price level. Its dividend payouts have grown at an 11.5% CAGR over the past five years. The fund’s four-year average yield is 6.59%.
IXC has gained 1.6% over the past six months and 4.8% year-to-date to close the last trading session at $39.54. The fund has a NAV of $39.52 as of October 31, 2023.
IXC’s POWR Ratings reflect this strong outlook. The ETF’s overall A rating translates to a Strong Buy in our proprietary rating system.
IXC has a grade of A for Buy & Hold and Trade. The fund has a B grade for Peer. It tops the list of 46 ETFs in the same group.
To access all the POWR Ratings for IXC, click here.
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IXC shares rose $0.36 (+0.91%) in premarket trading Wednesday. Year-to-date, IXC has gained 3.71%, versus a 10.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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