3 Energy ETFs for a Renewed Rally in Oil

America's on-again, off-again war with Iran appears to be on yet again, with President Donald Trump deeming the countries' ceasefire “over” and calling Iran's leaders “scum" while Tehran says it will respond to vulgarity “fearlessly."

Oil prices have already begun to respond, and the result could very well be renewed pain at the gas pump. But it also could mean rewards for those who own stock in Big Oil companies like Exxon Mobil (XOM) and Chevron (CVX), not to mention dozens of other companies that play a role somewhere along the oil “stream.”

If you want to grab some of those oil profits for yourself, diversified energy ETFs are among the easiest ways to do that. Let's talk about a few energy ETFs that are fit for the job.

Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.

The Best Energy ETFs to Buy

Under normal circumstances, I would boot up Morningstar Investor and run a quality screen. However, in this case, I already know there are going to be certain exceptions that Morningstar's screener can't account for (through no fault of its own). Specifically: Morningstar doesn't have Medalist ratings for a number of funds in the Commodity category, and it has not yet rated a fund that effectively replaces a longtime ETF standard in a prominent niche.

So this is admittedly a more subjective picks list with only one parameter: I've made sure that all the energy ETFs listed here have at least $100 million in assets under management (AUM), reducing the risk that any of the funds here will be closed by their provider. There's no universal AUM threshold that everyone agrees significantly reduces the risk, but $100 million is a decent baseline for funds that have been around a few years.

Let's look at a few funds from my larger list of the best energy ETFs to buy.

State Street Energy Select Sector SPDR ETF

• Assets under management: $36.3 billion
• Dividend yield: 2.8%
• Expense ratio: 0.08%, or 80¢ annually on a $1,000 investment

What is XLE?

The State Street Energy Select Sector SPDR ETF (XLE) is the largest energy sector ETF by a country mile—it commands well more than three times more assets than the second-largest broad energy ETF, the Vanguard Energy ETF (VDE). It’s also been around for more than a quarter of a century, going live in 1998.

This cheap, simple index fund provides extremely basic exposure to energy (primarily oil and gas) for investors who don’t want to go stock-picking in the sector.

What does XLE hold?

The XLE holds all of the energy-sector stocks in the S&P 500, which at the moment is 21. But not all energy companies are in the same kind of business.

Top holdings Exxon and Chevron are called "integrated" companies, meaning they span upstream (exploration and production), midstream (transportation and storage), and downstream (refining, distributing, and retail). Some holdings are only engaged in one or two "streams"—Phillips 66 (PSX), for instance, doesn’t engage in extracting oil or gas, but it does refine, transport, store, and sell energy products. (Have you seen a Phillips 66 gas station? That’s part of their retail unit.)

Related: The 16 Best ETFs to Buy Right Now

What else should you know about XLE?

Here’s a term every beginner investor should know: "cap-weighted."

Cap-weighted is short for "market capitalization-weighted," which means that the bigger the stock, the more assets a fund dedicates to that stock. Exxon, at $585 billion in market capitalization, is the largest stock XLE holds—and it also enjoys the largest "weight," at 20% of XLE’s assets. By comparison, $12 billion APA Corp. (APA) accounts for a mere 0.8%.

Why does that matter? The more of a fund’s assets a stock commands, the more effect its performance has on the fund’s performance. So when you consider Exxon's weight, along with the fact that Chevron commands another 15% of assets, that means just two stocks—XOM and CVX—are responsible for nearly 35% of XLE’s returns! This is called "concentration risk," and it’s something you need to think about whenever you own a fund—if you already own Exxon and Chevron, buying this SPDR energy ETF puts even more weight on those two stocks’ shoulders.

APA, in the meantime, represents less than 1%. So even a very big move from APA might not be noticeable in XLE’s performance.

That doesn’t necessarily mean State Street Energy Select Sector SPDR ETF is bad. XLE is different from many other funds in that most of its holdings are extremely sensitive to one factor: changes in commodity prices. That means if XOM moves, chances are that ConocoPhillips (COP), EOG Resources (EOG), and all of XLE’s other holdings are moving in a similar direction. Even if the fund’s assets were more evenly distributed, it might not make all that much of a difference. So despite XLE being extremely imbalanced, it remains an effective way to get exposure to the energy sector.

One last note: Dividends from the energy sector are much higher than the market as a whole. XLE often yields more than 3%, but that's "down" to the high-2% area because of energy's gains in 2026. Of course, that's still more than double the 1% offered up by the S&P 500.

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JPMorgan Alerian MLP ETN

• Assets under management: $823.9 million
• Dividend yield: 5.8%
• Expense ratio: 0.85%, or $8.50 annually on a $1,000 investment

What is AMJB?

The JPMorgan Alerian MLP ETN (AMJB) is an ETF-like fund (more on that in a bit) dedicated to providing access to one small slice of the sector pie: energy master limited partnerships (MLPs).

Master limited partnerships aren’t a type of energy company—they’re an overall business structure that’s applicable to numerous industries. They’re considered "pass-through entities" because income isn’t taxed at the corporate level—it’s "passed through" to owners and "unitholders" (the MLP equivalent of shareholders) via "distributions" (the MLP equivalent of dividends). MLPs can trade publicly just like regular companies, but they also provide some special tax perks because of the nature of these distributions, which we'll also get to in a moment.

The JPMorgan Alerian MLP ETN provides exposure to a very specific subset of master limited partnerships—energy MLPs, which typically involve energy’s "midstream": pipelines, terminals, and storage.

What does AMJB hold?

Technically speaking, AMJB doesn't hold anything ... but again, we’ll get to that in a second.

AMJB tracks the Alerian MLP Index, which is made up of just 14 publicly traded energy MLPs. This is an extremely tight portfolio. Top "holdings" include the likes of Sunoco LP (SUN), Energy Transfer LP (ET), and Western Midstream Partners LP (WES), which collectively boast tens of thousands of miles of pipelines, as well as storage facilities, processing plants, and other midstream energy assets.

Related: 10 Best Fidelity ETFs You Can Buy [Invest Tactically]

What else should you know about AMJB?

I think AMJB is one of the best ways to invest in MLPs, but its, er, plumbing is far from straightforward.

AMJB isn’t an ETF—it’s technically an exchange-traded note (ETN). In extremely oversimplified terms, an exchange-traded note is actually a debt security bundled up in an ETF wrapper. It replicates an index's performance, but it doesn't actually hold anything. You’ll still enjoy returns if the companies in AMJB head higher (or losses if their prices decline), and you’ll still be paid dividends. But there is an added risk: If the company issuing the underlying debt (in this case, JPMorgan) gets into extreme financial trouble, the fund could suffer even if its underlying index performs well.

Funnily, for as complex as all that sounds, you buy and sell ETNs just like you would an ETF. Your brokerage account experience will be exactly the same.

But why take on that additional risk? Why not just own master limited partnerships outright, or own an MLP ETF?

Well, MLPs tend to generate far-above-average (and even tax-advantaged) income, but they also generate far-above-average tax headaches. MLP distributions are primarily made up of tax-deferred return of capital, with the remainder typically considered ordinary income. MLPs even require an additional form—the K-1—come tax time. MLP funds like the popular Alerian MLP ETF (AMLP) cure one of those headaches by providing a 1099 instead of a K-1, but you still have to deal with the split of return of capital and ordinary income.

AMJB issues a 1099, not a K-1. And it simply distributes all of its income in the form of a quarterly coupon. That coupon is treated as ordinary income—taxed at your marginal rate, not the lower capital-gains tax rate reserved for long-term investments and qualified dividends. You also don't get quite the same amount of yield as you would from AMLP. However, you can avoid taxation on the coupon payments by owning AMJB in a tax-deferred account like an IRA.

Why not do the same with traditional MLP ETFs? You can, but watch out. Distributions from MLPs are considered unrelated business taxable income (UBTI), and a tax-deferred account is allowed a deduction of up to $1,000 in UBTI. Above that threshold, the income is taxable as ordinary income. AMJB's distributions, while linked to the distributions paid by the Alerian MLP Index's constituents, are technically coupon payments and not subject to UBTI rules.

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Invesco DB Oil Fund

• Assets under management: $214.2 million
• Dividend yield: 2.5%
• Expense ratio: 0.73%*, or $7.30 annually on a $1,000 investment

What is DBO?

The Invesco DB Oil Fund (DBO) is a commodity fund that allows investors to track the price of West Texas Intermediate (WTI) light, sweet crude oil via futures contracts.

What does DBO hold?

This Invesco fund tracks the DBIQ Optimum Yield Crude Oil Index Excess Return index, which will generally hold a single month's WTI oil contract. For instance, right now, it holds NYMEX Light Sweet Crude Oil Futures expiring in September 2026.

It also will hold Treasury securities (usually through a fund), as well as money market funds, which will produce income that the ETF distributes on an annual basis.

Related: 11 Best Vanguard Funds for the Everyday Investor

What else should you know about DBO?

In each of the previous funds, you're generally trying to reap the benefits of rising oil, gas, and other energy commodity prices by owning equities tied to those commodities. DBO is more direct—performance is tied to oil futures contracts with no corporate middleman.

That said, futures are hardly perfect. While spot prices factor heavily into futures prices, they're not the only variable—they also consider "cost of carry" (storage, insurance, financing), which among other things means that interest rates are also involved.

One big risk you have to consider in futures funds is contango, when futures prices are higher than the current spot price. In the case of some commodity funds, they'll hold only the front-month futures contract, then sell that right before it expires to purchase the next month's futures contract. And there's a risk that the fund will sell that front-month contract for less than what it will pay to purchase the next month's contract.

DBO is built to defray this risk somewhat. Rather than automatically roll over its expiring contracts into next-month contracts, it can roll its contracts over into any futures contract within the next 13 months. This allows DBO to benefit from another futures condition, "backwardation," in which you sell more expensive expiring contracts to purchase less expensive futures (basically the opposite of contango).

* 0.81% gross expense ratio is reduced with an 8-basis-point fee waiver until at least Aug. 31, 2026.

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