Energy ETFs outperformed peers this year, buoyed by high oil and gas prices in an otherwise sinking market.

All five of the top ETFs invested in stocks in energy, an outperformer in a year in which the S&P 500 fell 16% and every other one of the 11 Global Industry Classification Standard (GICS) classifications fell or was little changed. The reason: crude oil prices jumped 31% and natural gas surged 76%.

Most of the gains stemmed from Russia's invasion of Ukraine in February, which triggered a spike in oil prices as the U.S. and EU moved to limit Russian energy exports. OPEC+ announced oil production cuts of 2 million barrels per day in October, further tightening global supply. Toward the end of the year, prices came off their highs as China's pandemic lockdown and a global economic slowdown suppressed demand.

Methodology

The top five ETFs 2022 were selected from the broad spectrum of ETFs traded on U.S. markets found on the website VettaFi. Inverse and leveraged ETFs were excluded from the selection process, as were ETFs with less than $1 billion under management (AUM). The top five were then picked from the remaining group of 540 ETFs based on their YTD total return as of the close of markets on Nov. 30, 2022. All data below is as of that date.

iShares U.S. Oil & Gas Exploration & Production ETF (IEO)

• Year-to-Date Return: 69.9%
• Fund Description: Multi-Cap Oil and Gas Fund
• Expense Ratio: 0.39%
• Inception Date: May 1, 2006
• Issuer: BlackRock Financial Management

IEO invests in oil and gas companies, and attempts to track the Dow Jones U.S. Select Oil Exploration & Production Index. Oil and gas exploration and production (E&P) companies make up over 73% of its holdings. The market-cap-weighted ETF also holds refining, marketing, and transportation companies, which receive about 20% portfolio allocation. The fund doesn't focus solely on growth or value stocks and invests in companies of a variety of sizes.

The top three holdings for IEO are ConocoPhillips (COP), an integrated oil and gas company; EOG Resources Inc. (EOG), an oil and gas E&P company; and Marathon Petroleum Corp. (MPC), a downstream energy company focused on refining, marketing, and transportation.

Fidelity MSCI Energy Index ETF (FENY)

• Year-to-Date Return: 69.5%
• Fund Description: Multi-Cap Energy Fund
• Expense Ratio: 0.08%
• Inception Date: Oct. 21, 2013
• Issuer: Fidelity

FENY is a broad-based energy ETF that tracks the MSCI USA IMI Energy Index. The index represents the performance of the U.S. energy sector. FENY doesn't invest in all stocks in the index, attempting to pick a representative sample to provide similar returns to the index. Like IEO, the fund invests in companies with both large and small market caps.

Despite investing in companies across the sector, FENY is heavily concentrated in a small number of positions, with the top three holdings accounting for over 46% of the portfolio. These holdings are Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), both integrated oil and gas companies, and ConocoPhillips, described above.

Energy Select Sector SPDR Fund (XLE)

• Year-to-Date Return: 69.5%
• Fund Description: Large-Cap Energy Fund
• Expense Ratio: 0.10%
• Inception Date: Dec. 16, 1998
• Issuer: State Street

XLE's portfolio focuses on large-cap energy stocks. The fund's benchmark is the the Energy Select Sector Index, which aims to represent the energy sector of the large-cap S&P 500 Index.

Oil, gas, and consumable fuels stocks make up the large majority of the fund's portfolio at nearly 91%, with the remaining assets dedicated to energy equipment and services names. Like FENY, the fund is heavily concentrated, with a few stocks comprising a large percentage of the portfolio, with its top two holdings accounting for over 42% of its AUM. The fund's top three holdings include Exxon Mobil and Chevron, both described above, and Schlumberger NV (SLB), an oilfield services company.

Vanguard Energy ETF (VDE)

• Year-to-Date Return: 69.5%
• Fund Description: Multi-Cap Energy Fund
• Expense Ratio: 0.10%
• Inception Date: Sept. 23, 2004
• Issuer: Vanguard

VDE seeks to track the performance of the MSCI U.S. Investable Market Energy 25/50 Index, a broad-based index of energy stocks. Unlike FENY, it attempts to fully replicate the holdings of its benchmark index, except when regulatory constraints prevent it from doing so.

The top holdings of VDE include Exxon Mobil, Chevron, and ConocoPhillips.

iShares U.S. Energy ETF (IYE)

• Year-to-Date Return: 67.6%
• Fund Description: Multi-Cap Energy Fund
• Expense Ratio: 0.39%
• Inception Date: June 12, 2000
• Issuer: BlackRock Financial Management

IYE tracks the Russell 1000 Energy RIC 22.5/45 Capped Gross Index, an index composed of U.S. equities within the energy sector. Integrated oil and gas companies account for over 41% of invested assets, followed by oil and gas E&P companies at 29%.

The multi-cap fund is primarily focused on value stocks. Its holdings are concentrated on a small group of companies, with its top three holdings accounting for nearly half of its total AUM. Thus, it may be too concentrated for investors with a long time horizon, but could be useful as a sector rotation strategy or as a way to overweight a specific corner of the energy sector.

IYE's top holdings include Exxon Mobil, Chevron, and ConocoPhillips.

The Bottom Line

The top ETF of 2022 is the iShares U.S. Oil & Gas Exploration & Production (IEO) fund, which has YTD returns of 70%. All five of the top funds invest in the energy sector, which has been enormously outperforming the broader market. This outperformance came as oil prices surged throughout most of the year amid Russia's invasion of Ukraine and subsequent embargoes on Russian crude imports to the EU, as well as production cuts by OPEC+.