Potential investors should be aware that XLF also includes significant exposure to explorers and producers, which experienced heightened volatility in the recent sell-off. [Shale ‘Fracklog’ Could Cap Gains in Energy Sector, ETFs]
“These firms face myriad risks, including commodity price volatility, exploration risks, operational risks, and political and regulatory scrutiny,” Johnson added.
Looking at the long-term, oil services companies could grow increasingly more important as the industry taps into hard-to-reach regions, such as deep ocean waters and Artic tundras, to extract the diminishing resource.
Alternatively, investors can also consider the Vanguard Energy ETF (NYSEArca: VDE) and Fidelity MSCI Energy Index ETF (NYSEArca: FENY). Both VDE and FENY have a cheaper 0.12% expense ratio, compared to XLE’s 0.15% expense ratio. The Vanguard and Fidelity offerings also track a similar diversified group of energy companies, with similar top heavy tilts. However, XLE remains the go to choice for large and active traders, with a heavy average volume of 19.0 million shares, compared to VDE’s average volume of 396,000 and FENY’s average 190,00.
For more information on the energy sector, visit our energy category.
Max Chen contributed to this article.