Depending on your current asset allocation and investment needs, the best energy ETFs in Canada can be a good addition to your investment portfolio.
Energy is one of Canada’s largest sectors. In 2017, the industry accounted for 10.6% of Canada’s GDP and employed over 900,000 people.
The industry presents a great investment opportunity but choosing the right company can be tricky.
In the energy sector, there are several hundred companies with operations ranging from oil and natural gas to green energy. This includes a range of producers that work on the extraction, transportation, and refining of products.
With so many companies operating in such a wide range of areas, it can be difficult for investors to pick a winner.
Researching dozens or even hundreds of companies and understanding their business model, financial statements, and long-term vision would take a lot of time.
To make things easier, Canadians can choose to invest in Canadian energy ETFs. These energy sector ETFs are a great way to gain exposure to a variety of different companies within the sector.
Below are my thoughts on the best energy ETFs in Canada for 2022.
An Energy ETF is a basket of energy companies that are bundled into one easy-to-purchase fund.
These ETFs are created by fund managers and allow Canadians to invest in the energy sector at large. For those looking for specific sub-sectors, there are specialized funds that have been created to meet your needs.
Examples include alternative energy ETFs, energy storage ETFs, or solar energy ETFs. If you think that one of these industries will see growth in the future, these ETFs allow you to invest without having to pick just a few companies.
These Canadian energy ETFs can be purchased just like any other publically traded stock. The simplicity and ability to diversify into different sectors like clean energy are some of the main reasons that Canadian energy ETFs have become so popular.
The top-9 Energy ETFs in Canada on my list are:
- iShares S&P/TSX Capped Energy Index ETF
- Horizons S&P/TSX Capped Energy Index ETF
- BMO Equal Weight Oil & Gas Index ETF
- Harvest Clean Energy ETF
- BMO Clean Energy Index ETF
- iShares Global Energy ETF
- iShares Global Clean Energy ETF
- SPDR S&P Oil & Gas Exploration & Production ETF
- VanEck Vectors Oil Services ETF
1. iShares S&P/TSX Capped Energy Index ETF
The iShares S&P/TSX Capped Energy Index ETF (XEG) fund holds shares of the largest energy producers in Canada.
The fund attempts to mimic the performance of the S&P/TSX Capped Energy Index. In total, 13 stocks are included in this ETF, with the top 10 representing over 94% of the total fund. The top 10 holdings as of April 2021 include:
- Canadian Natural Resources Ltd. 24.8%
- Suncor Energy Inc. 24.4%
- Cenovus Energy Inc. 12.6%
- Imperial Oil Ltd. 8.3%
- Tourmaline Oil Corp. 7.6%
- ARC Resources Ltd. 5.4%
- Parex Resources Inc. 3.2%
- Whitecap Resources Inc. 2.8%
- PrairieSky Royalty Ltd. 2.8%
- Crescent Point Energy Corp. 2.7%
2. Horizons S&P/TSX Capped Energy Index ETF
Just like XEG, the Horizons S&P/TSX Capped Energy Index ETF (HXE) also attempts to replicate the performance of the S&P/TSX Capped Energy Index. As a result, you will see that the top 10 holdings are very similar.
The main difference between the two is their Management Expense Ratios, with HXE charging 0.27% compared to XEG’s 0.61%.
- Suncor Energy Inc 25.11%
- Canadian Natural Resources Ltd 24.99%
- Cenovus Energy Inc 11.28%
- Tourmaline Oil Corp 7.16%
- Imperial Oil Ltd 5.78%
- Arc Resources Ltd 4.69%
- Whitecap Resources Inc 2.14%
- Crescent Point Energy Corp 2.13%
- Meg Energy Corp 2.05%
- ENERPLUS CORP 1.94%
The BMO Equal Weight Oil & Gas Index ETF (ZEO) attempts to track the performance of the Solactive Equal Weight Canada Oil & Gas Index.
As the name suggests, ZEO holds positions in companies that are heavily focused on oil and gas exploration, extraction, and production.
The top 10 holdings in ZEO are:
- CenovUS Energy Inc 14.34%
- Suncor Energy Inc 13.21%
- Imperial Oil Ltd 12.08%
- Canadian Natural Resources 12.04%
- Tourmaline Oil Corp 11.02%
- Tc Energy Corp 9.58%
- Pembina Pipeline Corp 9.51%
- Enbridge Inc 9.26%
- Keyera Corp 8.96%
Harvest Clean Energy ETF (HCLN) was one of the first clean energy ETFs in Canada. The fund focuses on companies that operate in the renewable energy sector.
While listed on Canadian markets, HCLN holdings include the 40 largest clean energy producers from around the world.
As of December 2021, the top 10 holdings were:
- China Everbright Environment Group Limited. 3.7%
- China Longyuan Power Group Corporation Limited. 3.7%
- Ameresco, Inc. 3.3%
- VERBIO Vereinigte BioEnergie AG 3.0%
- Ormat Technologies, Inc. 2.9%
- RWE AG 2.9%
- SolarEdge Technologies, Inc. 2.9%
- Plug Power Inc. 2.8%
- VERBUND AG 2.8%
- Enphase Energy, Inc. 2.7%
The BMO Clean Energy Index ETF (ZCLN) seeks to replicate the performance of the S&P Global Clean Energy Index. This index includes companies from around the world who are producers of clean energy.
The weighting of these companies within this renewable energy ETF is based on the market cap as well as the amount of exposure a company has to clean energy.
Just a little under half (42%) of the funds holdings are companies in the United States.
The top 10 holdings in this ETF are:
- Enphase Energy Inc 10.51%
- Plug Power Inc 6.55%
- Vestas Wind Systems A/S 6.53%
- Consolidated Edison Inc 5.69%
- Solaredge Technologies Inc 5.52%
- Orsted A/S 5.11%
- Iberdrola Sa 3.88%
- Edp-Energias De Portugal Sa 3.67%
- Sse Plc 3.31%
- First Solar Inc 3.22%
The iShares Global Energy ETF (IXC) is a fund that focuses heavily on companies in the oil and gas industry. Established in 2001, IXC is one of the oldest ETFs in this sector.
The fund tracks the S&P Global 1200 Energy Sector Index and has over half of its investments in U.S.-based companies. Aside from the U.S., the fund also has significant exposure to the energy sectors of the United Kingdom (14%) and Canada (13%).
The top 10 holdings are:
- Exxon Mobil Corp 13.25%
- Chevron Corp 10.74%
- TotalEnergies S 6.32%
- BP PLC 4.72%
- Royal Dutch Shell PLC Class A 4.64%
- Enbridge Inc 4.57%
- ConocoPhillips 4.30%
- Royal Dutch Shell PLC B 4.19%
- TC Energy Corp 2.66%
- EOG Resources Inc 2.26%
The iShares Global Clean Energy ETF (ICLN) gives investors exposure to companies that produce clean energy from renewable sources like solar and wind.
The fund invests in companies around the world and is representative of the global clean energy market. While listed on American markets, the fund is still a good way to invest in clean energy ETFs in Canada.
The fund holds a total of 83 assets, with the top 10 holdings as of Jan 2022 being:
- Enphase Energy Inc.10.41%
- Vestas Wind Systems 6.59%
- Plug Power Inc. 6.37%
- Consolidated Edison Inc. 5.59%
- SolarEdge Technologies Inc. 5.30%
- Oersted A/S 5.18%
- Iberdrola S.A. 3.93%
- EDP-Energias de Portugal S.A. 3.71%
- SSE PLC 3.33%
- First Solar Inc. 3.17%
The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) invests in companies that are operating in the oil and gas exploration and production sector.
The fund is equally weighted, meaning that bigger companies are not overrepresented in the sector. This gives more exposure to smaller companies and increases the diversification of the fund.
The top 10 holdings of XOP are:
- Callon Petroleum Company 3.10%
- SM Energy Company 2.78%
- Range Resources Corporation 2.73%
- Devon Energy Corporation 2.64%
- Diamondback Energy Inc. 2.64%
- ConocoPhillips 2.54%
- Marathon Oil Corporation 2.53%
- Continental Resources Inc. 2.50%
- EOG Resources Inc. 2.50%
- Cimarex Energy Co. 2.49%
The VanEck Vectors Oil Services ETF (OIH) is a fund that invests in companies involved in upstream operations, including oil equipment, drilling, and services.
The fund holds 25 companies, with over 90% of the fund’s holdings being United States-based companies.
The top 10 holdings as of January 12, 2022, are:
- Schlumberger Nv 20.58%
- Halliburton Co 11.50%
- Baker Hughes Co. 8.13%
- Tenaris Sa 4.87%
- Nov Inc 4.69%
- Patterson-Uti Energy Inc 4.65%
- Cactus Inc 4.52%
- Championx Corp 4.48%
- Helmerich & Payne Inc 4.61%
- Technipfmc Plc 4.16%
Canadians have access to a wealth of options when it comes to brokerage platforms. When choosing a platform, factors such as commissions and trading fees play an important role in decision-making.
Here are my top choices for buying Canadian energy ETFs in Canada:
Wealthsimple is a good choice for both new and experienced investors alike.
Taking a simple and no-frills approach to investing, the platform is easy to use and offers an uncomplicated user interface.
Perhaps most importantly, the company offers zero commission on all Canadian stocks and ETFs. This means traders can buy and sell Canadian energy ETFs with zero fees!
For U.S. ETFs, clients will be charged a 1.5% currency conversion fee on every purchase. Clients who want to take advantage of a $50 cash bonus can open a new account here.
Trade stocks and ETFs for free
Available on all devices & legit
Great trading platform for beginners
Get a $50 cash bonus when you trade $150
Questrade is another option that is great for Canadians. Similar to Wealthsimple, the platform offers a great user experience.
Questrade offers free trading on ETFs and also allows you to hold USD in your account. This means that you can avoid conversion fees when buying U.S.-listed ETFs.
A $50 free trade credit is available to anyone who opens a Questrade account here and funds their account with at least $1,000.
Trade stocks, ETFs, options, etc.
Low and competitive trading fees
Top trading platform for advanced traders
Get $50 trade credit with $1,000 funding
Qtrade is another Canadian-based company that offers competitive pricing when it comes to Canadian energy ETFs.
The company offers commission-free trading on selected ETFs as well as a flat fee of $8.75 for every other trade. This fee drops down to $6.75 for frequent traders who carry out over 150 trades in a quarter.
Learn more about Qtrade in this review.
In today’s world, energy ETFs can be a very profitable investment.
As the world’s population continues to grow, demand for energy is unlikely to go down. In addition, the shift towards cleaner energy also presents a good investment opportunity.
Many traditional energy companies have started to pivot towards investments in alternative energy, meaning that the sector still has lots of room to grow in the future.
One potential downside to energy ETFs is political uncertainty.
Canadian energy ETFs can be impacted by decisions at the political level. For example, Biden’s decision to cancel the $9 billion Keystone XL project in 2021 was a major blow to TC energy.
These unexpected events are difficult to anticipate and can have negative impacts on those who are invested heavily in Canadian energy ETFs.
For decades, the Canadian energy sector has been one of the main drivers of economic growth and this is a trend that is unlikely to change for the foreseeable future.
As more and more companies see the value in increasing clean energy-related research and development, investors should also be optimistic that the future of the sector is highly promising.
Best Energy ETFs in Canada FAQs
Among the ETFs listed here, the top Canadian clean energy ETF over the past 3 years is ICLN. The ETF has had a return of over 129% in that time frame.
There is no consensus top pick for best energy ETF in Canada. Investors must weigh several factors when evaluating any Canadian energy ETF.
Factors such as revenue, profits, corporate governance, and diversification (operations and geographic) are all factors that investors should look at. The nine Canadian energy ETFs listed above are all worth considering.
Why should I invest in energy ETFs?
Energy ETFs are a good way to diversify holdings and gain exposure to one of Canada’s largest industries
Are energy ETFs safer than energy stocks?
In many ways, ETFs are safer than picking individual stocks. Rather than putting all your money into a small number of companies, ETFs are a good way to diversify and invest in the industry as a whole.
Canadian energy ETFs are a good way to invest in the sector and take away risks of individual companies you pick underperforming.
Do energy ETFs pay dividends?
Yes, several of the Canadian energy ETFs listed above pay dividends.
Vanguard Energy ETF (VDE) is an energy ETF available for purchase. The ETF is listed on an American exchange but is available for purchase by Canadians as well
Leveraged Energy ETFs allow investors to make bigger bets into the industry. Leveraged ETFs are usually listed as 2X or 3X, meaning gains (or losses) will be double or triple the amount of a normal ETF performance on any given day.