With the ever-increasing demand for energy, investing in the Canadian energy sector can be a profitable venture. However, selecting the right investment vehicle can be daunting for many investors. As a result, exchange-traded funds (ETFs) are a popular choice for investors seeking exposure to the Canadian energy sector.
If you are one of those investors, you may wonder which Canadian energy ETFs are worth considering. This article will explore the best Canadian energy ETFs to help you achieve your investment goals. We will evaluate each ETF’s performance, fees, and investment strategy to help you make an informed decision.
What's in the Article:
- Why Choose Energy ETFs in Canada?
- The Best Canadian Energy ETFs
- The Canadian Energy ETF Landscape
- Will You Invest in Energy ETFs in Canada?
Why Choose Energy ETFs in Canada?
Investing in energy ETFs in Canada can offer several benefits, making them an attractive option for both seasoned and beginner investors.
Clean energy, coal, renewable energy, oil, natural gas and nuclear energy. The energy sector is one of the most critical and prominent sectors in national and global markets; it makes sense for investors who focus on growing their investments and maintaining a diversified portfolio to want a piece of the pie. If you want a diversified portfolio, energy company stocks should play a role in your investment strategy.
- Diversification: Energy ETFs provide an easy way to gain diversified exposure to the energy sector. This is because ETFs typically hold a basket of different energy companies, helping to spread risk across various companies rather than being concentrated in a single one. This diversified approach can lead to reduced risk and increased stability in your portfolio.
- Strong Performance: Several energy ETFs in Canada have shown strong performance in recent years, offering attractive returns to investors. For instance, three Canadian ETFs tracking the performance of Canada’s energy sector delivered more than 80% gains in 2021.
- Exposure to Energy Sector: Investing in energy ETFs allows you to gain exposure to Canada’s energy sector without the need to pick and choose individual stocks. This can be beneficial, especially for those new to investing or those who do not have the time or resources to research individual companies.
- Investing in Renewable Energy: With a growing global focus on sustainability and clean energy, investing in energy ETFs can provide exposure to renewable energy companies. This supports a more sustainable future and could lead to significant growth potential as the world continues to transition toward cleaner energy sources.
In summary, Canadian energy ETFs offer a balanced approach to investing in the energy sector, providing diversification, the potential for high returns, exposure to a critical industry, and an opportunity to support sustainable energy solutions.
The Best Canadian Energy ETFs
Here are the best energy ETFs in Canada, from oil and gas to clean energy and more.
This ETF exposes investors to the Canadian energy sector by tracking the S&P/TSX Capped Energy Index. The top holdings of this ETF include major energy companies such as Canadian Natural Resources and Suncor Energy, making it a solid investment for those seeking broad-based exposure to the energy sector. This fund is managed by BlackRock, one of the world’s leading asset management firms, known for its efficient portfolio management.
The ETF invests in shares of Canadian issuers in the Canadian energy sector. The BlackRock iShares S&P/TSX Cap Energy Index ETF has made it to my list of best Canadian oil ETFs because it invests in energy stocks. The ETF aims to replicate the S&P/TSX Capped Energy Index performance as far as possible without net costs.
Horizons S&P/TSX Capped Energy ETF (TSX:HXE)
This ETF also tracks the S&P/TSX Capped Energy Index, providing investors with cost-efficient and convenient access to the Canadian energy sector. It has demonstrated strong performance and potential recovery in the energy sector, which could make it an attractive investment in the current year.
Horizon Enhanced Income Energy ETF (TSX:HEE)
This ETF uses an innovative investment strategy that seeks to provide investors with a high level of income while offering the potential for capital growth. It invests in an equally-weighted portfolio of energy companies and writes covered call options on these securities to generate additional income. This approach could make it an attractive investment for those seeking income and growth potential.
Harvest Clean Energy ETF (HCLN)
This clean energy ETF provides exposure to international clean energy companies, including those in North America, Europe, Asia, and New Zealand. With the growing global focus on clean energy, this ETF could have significant growth potential. In addition, it’s an equally weighted ETF, ensuring diversified exposure to the clean energy sector.
The Harvest Clean Energy ETF is a TSX-listed Clean Energy ETF that aims to provide Canadian investors access to the rapidly developing clean energy sector. The fund invests in a portfolio of 40 of the largest clean energy issuers from a selected investable clean energy universe. The funds include companies focused on solar energy and wind turbines.
BMO Clean Energy Index ETF (ZCLN.TO)
This ETF seeks to replicate the performance of the Nasdaq Clean Edge Green Energy Index. It invests in companies involved in renewable energy generation, energy storage, and energy efficiency. With the growing global focus on clean energy, this ETF could offer significant growth potential.
Although this ETF has a global focus, it also includes companies from Canada. It tracks the S&P Global Clean Energy Index and invests in renewable energy companies worldwide. In addition, it offers exposure to various emerging energy sources such as solar, wind, and hydroelectric power. iShares Global Water Index ETF is another notable ETF to look at.
The Canadian Energy ETF Landscape
The Energy ETFs industry in Canada encompasses a variety of investment vehicles that track indices related to the energy sector, ranging from oil and gas to renewable energies. This sector presents substantial growth potential given Canada’s rich natural resources and growing commitment towards renewable energy sources.
As the global energy landscape continues to evolve, the demand for more diversified and cleaner energy sources is rising. This, coupled with favourable government policies and increasing investor interest in sustainable investing, sets the stage for a promising outlook for the Canadian Energy ETFs industry.
The sub-sectors of Energy ETFs in Canada are:
- Oil and Gas ETFs & Companies: These track the performance of indices related to oil and gas companies, including exploration, production, and refinement.
- Renewable Energy ETFs & Companies: These ETFs focus on companies involved in renewable energy sources, such as solar, wind, hydroelectric, and bioenergy.
- Energy Services ETFs & Companies: These track companies that provide services to the energy sector, including equipment, logistics, and technology services.
- Nuclear Energy ETFs & Companies: These focus on companies producing and serving nuclear energy.
- Energy Infrastructure ETFs & Companies: These ETFs concentrate on companies engaged in the operation, development, and maintenance of energy infrastructure such as pipelines, storage, and distribution systems. You could look at the best Canadian utility ETF.
- Integrated Energy ETFs & Companies: These ETFs track large, multinational companies involved in all aspects of the energy industry, from extraction to retail.
For example, the Horizons Crude Oil ETF is an ETF in the energy sector that invests in the Solactive Light Sweet Crude Oil Winter MD rolling futures index through a forward arrangement with Canadian financial institutions. The ETF aims to provide its investors with safe exposure to commodity prices during the winter months of the contract year, which are the most liquid of the year. It also tries to explain the index’s performance to its investors when they bet on oil.
Will You Invest in Energy ETFs in Canada?
As the energy sector continues to evolve and adapt to global trends, investing in energy ETFs in Canada can offer attractive opportunities for investors. With a range of ETFs available, investors can choose from those focused on traditional energy sources, such as oil and gas, and those targeting emerging energy sources, like renewable energy and clean technology.
Energy ETFs provide investors with diversification, allowing them to access a broad portfolio of energy companies without needing individual stock selection. This diversification helps mitigate risk and allows exposure to the overall performance of the energy sector. Moreover, some energy ETFs have demonstrated strong performance in recent years, delivering attractive returns to investors.
Investing in energy ETFs also allows investors to participate in the global transition towards cleaner and more sustainable energy sources. With the growing focus on renewable energy, clean technology, and environmental sustainability, ETFs targeting these areas can provide exposure to emerging energy sources and technologies.
Additionally, energy ETFs offer convenience and cost-effectiveness, as they can be easily bought and sold on Canadian exchanges. They provide investors instant diversification and professional management, saving time and effort in researching and managing individual energy stocks.
However, like any investment, there are risks to consider. For example, the energy sector can be volatile, influenced by commodity prices, government regulations, and geopolitical events. As a result, investors must conduct thorough research, understand the underlying holdings and strategy of the ETFs, and assess their risk tolerance before investing.
In conclusion, investing in energy ETFs in Canada can be a strategic choice for investors seeking exposure to the energy sector and emerging energy sources. With the potential for diversification, strong performance, and the opportunity to participate in the transition toward cleaner energy, energy ETFs offer a compelling investment option. However, it is vital for investors to carefully evaluate their investment goals and risk tolerance and conduct thorough research to select the most suitable energy ETFs for their portfolio.