8 Best Oil ETFs in Canada 2022: Invest in the Canadian Oil Sector

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by Enoch Omololu

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For Canadian investors, Oil ETFs provide exposure to a basket of companies from the Canadian Oil Sector.

ETFs are popular because for a much smaller management fee than mutual funds, investors get to buy and hold a variety of different companies. This takes the stress and work out of picking individual stocks.

In this article, I will cover some of the best Canadian Oil and Gas ETFs for investors in 2022.

What is an Oil ETF?

For investors who want exposure to stocks in the Canadian Oil industry, Oil ETFs are an excellent asset to add to your portfolio.

Not only do these energy sector stocks offer stability for your account, but many of them also pay a healthy dividend yield to shareholders.

Oil ETFs are popular for long-term investors as the dividends can provide cash flow to invest elsewhere or to steadily increase the stake in the ETF.

The energy sector is a major industry in the Canadian economy, and oil stocks are amongst the largest companies that trade on the Toronto Stock Exchange.

Here are some of the best Canadian Oil ETFs for 2022.

Best Oil ETFs in Canada

  • Horizons Crude Oil ETF (HUC)
  • iShares S&P/TSX Capped Energy Index ETF (XEG)
  • BMO Equal Weight Oil and Gas Index ETF (ZEO)
  • Horizons S&P/TSX Capped Energy Index ETF (HXE)
  • Horizons Pipelines and Energy Services Index ETF (HOG)
  • BetaPro Crude Oil Leveraged Daily Bull ETF (HOU)
  • United States Oil Fund ETF (USO)
  • Invesco S&P 500 Equal Weight Energy ETF (RYE)

Horizons Crude Oil ETF (HUC)

HUC was established by Horizons ETFs back in 2009 and it trades on the Toronto Stock Exchange.

HUC is slightly different from your standard ETF as its holdings are 100% invested in the winter months crude oil futures contracts.

It is intended for tracking the performance of Solactive Light Sweet Crude Oil Winter MD Rolling Futures Index ER.

This unique ETF structure eliminates the volatility of month to month prices of crude oil futures contracts.

Here are some key facts for HUC:

  • MER: 0.75%
  • Number of stocks: 1 (consisting of crude oil futures contracts
  • Dividend yield: N/A
  • Distribution frequency: N/A
  • 1-year performance: 54.22%
  • Eligibility: All registered and non-registered accounts

Unlike other energy sector ETFs, HUC does not pay any distribution or dividends. It also has a higher MER than your average ETF.

iShares S&P/TSX Capped Energy Index ETF (XEG)

This ETF is from iShares by Blackrock and was established in 2001 and trades on the Toronto Stock Exchange.

Unlike HUC, XEG is a sector ETF that tracks the Canadian oil industry. It replicates the performance of the S&P/TSX Capped Energy Index, net of expenses.

Despite this being a sector ETF, XEG comes with a high risk rating. This is likely more due to the volatility in month-to-month oil prices, rather than the underlying companies.

Here are some of the holdings in XEG:

TickerNameAllocation
CNQCanadian Natural Resources LTD24.86%
SUSuncor Energy Inc24.47%
CVECenovus Energy Inc11.05%
TOUTourmaline Oil Corp7.55%
IMOImperial Oil Corp5.53%
ARXArc Resources LTD4.90%
MEGMEG Energy Group2.18%
WCPWhitecap Resources INC2.14%
CPGCrescent Point Energy Group2.09%
VETVermilion Energy Inc1.81%

Broken down by subsectors, 57% of the fund is dedicated to oil and gas exploration and production, while 41% is dedicated to integrated oil and gas companies.

Given the focus on domestic companies, XEG is a great Canadian oil and gas ETF for those bullish on Canadian oil and gas producers.

Finally, here are some key facts for the XEG ETF:

  • MER: 0.61%
  • Number of stocks: 24
  • Dividend yield: 2.08%
  • Distribution frequency: Quarterly
  • 1-year performance: 95.13%
  • Eligibility: All registered and non-registered accounts

The XEG ETF has performed tremendously over the past year, nearly doubling your initial investment.

It pays a healthy 2.08% dividend yield on a quarterly basis and has a decent MER of 0.61%.

BMO Equal Weight Oil and Gas Index ETF (ZEO)

ZEO is an ETF from the BMO global asset management group that was established in 2009 and trades on the Toronto Stock Exchange.

Like XEG, ZEO comes with a high-risk rating. It holds eleven different stocks of mostly equal weighting across the Canadian oil and gas industries.

Here are the major holdings in ZEO:

TickerNameAllocation
TOUTourmaline Oil Corp11.09%
ARXARC Resources LTD10.19%
IMOImperial Oil LTD10.14%
KEYKeyera Corp10.04%
CVECenovus Energy INC9.82%
TRPTC Energy Corp9.75%
ENBEnbridge Inc9.75%
PPLPembina Pipeline Corp9.67%
CNQCanadian Natural Resources LTD9.66%
SUSuncor Energy Inc9.63%

And here are some key facts for ZEO:

  • MER: 0.61%
  • Number of stocks: 11
  • Dividend yield: 2.95%
  • Distribution frequency: Quarterly
  • 1-year performance: 71.62%
  • Eligibility: All registered and non-registered accounts

ZEO has a higher distribution yield and the same MER as XEG, which puts it on par with most oil ETFs on the TSX

ZEO’s equal-weighted holdings in many of the blue-chip Canadian oil and gas companies make this a fairly safe investment despite the high-risk rating.

Horizons S&P/TSX Capped Energy Index ETF (HXE)

The second Horizons ETF on this list is more of a standard oil sector ETF. HXE tracks the Canadian energy sector with a capped weighting on any of the holdings in the ETF.

HXE was established in 2013 and trades on the Toronto Stock Exchange.

The most appealing feature of HXE is its very low MER. In exchange for these low fees, HXE does not pay out a dividend or distribution.

Here are the top holdings in HXE:

TickerNameAllocation
CNQCanadian Natural Resources Ltd25.96%
SUSuncor Energy Inc24.12%
CVECenovus Energy Inc11.36%
TOUTourmaline Oil Corp6.88%
IMOImperial Oil Ltd5.66%
ARXArc Resources Ltd5.01%
MEGMEG Energy Group2.28%
CPGCrescent Point Energy Group2.25%
WCPWhitecap Resources Inc2.17%
ERFEnerplus Corp1.85%

And here are some key facts for HXE:

  • MER: 0.27%
  • Number of stocks: 24
  • Dividend yield: N/A
  • Distribution frequency: N/A
  • 1-year performance: 96.17%
  • Eligibility: All registered and non-registered accounts

HXE essentially tracks the same index that XEG does. It has a similar one-year performance return and similar holdings.

As mentioned, the only difference is a lower MER and no distributions.

Horizons Pipelines and Energy Services Index ETF (HOG)

The third entry from Horizons is HOG, an ETF that tracks companies that operate oil pipelines. It tracks the Solactive Pipelines and Energy Services Index, net of expenses.

This ETF was established back in 2014 and is one of the many Canadian oil ETFs on the TSX.

Here are some of the top holdings in HOG:

TickerNameAllocation
PKIParkland Corp8.53%
MTLMullen Group Ltd7.90%
KEYKeyera Corp7.77%
TRPTC Energy Corp7.74%
PPLPembina Pipeline CorpHES7.7%
ENBEnbridge Inc7.69%
GEIGibson Energy Inc7.69%
SCLShawcor Ltd New7.58%
ALAAltagas Ltd7.57%
TWMTidewater Midstream and Infrastructure Ltd7.56%

Here are the key facts for the HOG ETF:

  • MER: 0.64%
  • Number of stocks: 12
  • Dividend yield: 2.70%
  • Distribution frequency: Quarterly
  • 1-year performance: 19.58%
  • Eligibility: All registered and non-registered accounts

HOG has not performed as well as ETFs with oil producers in them.  The ETF has an average annualized return of 3.69% since inception.

HOG does pay a good dividend yield at 2.70% on a quarterly basis.

While the returns have not been as high, the transport and storage of crude oil has been a far less volatile way to invest in the Canadian oil sector.

BetaPro Crude Oil Leveraged Daily Bull ETF (HOU)

HOU was established back in 2014 and trades on the Toronto Stock Exchange. While it is labelled as a BetaPro ETF, it falls under the umbrella of Horizons ETFs.

HOU is a leveraged oil ETF that uses 2x leverage for its returns. This means that if the ETF gains or declines, it does so at double the rate of a non-leveraged ETF.

The leveraged oil ETF requires a higher MER and does not offer any dividends or distributions to its shareholders.

Like with HUC, this ETF is 100% invested in crude oil futures contracts

Here are some key facts for the HOU ETF:

  • MER: 1.36%
  • Number of stocks: 1 (crude oil futures contracts)
  • Dividend yield: N/A
  • Distribution frequency: N/A
  • 1-year performance: 131.06%
  • Eligibility: All registered and non-registered accounts

The one-year performance of HOU shows the volatility involved in a leveraged oil ETF. Investors should know that leveraged ETFs are riskier than non-leveraged ETFs.

The 1.36% MER for HOU is extremely high, especially given the fact that it does not pay any distributions or dividends.

best oil etfs in canada

United States Oil Fund ETF (USO)

As its name suggests, USO is an ETF that trades on the NYSEArca exchange in the United States. It is a single asset index fund that tracks WTI crude oil futures.

USO was first issued by the Bank of New York Mellon and is a general partner with United States Commodity Funds, LLC.

USO has four holdings and here is the breakdown of each holding:

And here are some key facts about USO:

  • MER: 0.79%
  • Number of stocks: 4
  • Dividend yield: N/A
  • Distribution frequency: N/A
  • 1-year performance: 82.74%
  • Eligibility: All registered and non-registered accounts

Like other ETFs that only track oil futures contracts, USO does not pay a dividend or distribution. It also has a higher than average MER for the energy industry.

Canadian investors who are looking to invest in USO will have to buy shares in US dollars.

Invesco S&P 500 Equal Weight Energy ETF (RYE)

RYE is an Invesco brand ETF that was established in 2006 and trades on the NYSEArca exchange in America.

The RYE ETF tracks some of the largest oil companies that trade on the S&P 500. This means the ETF has 100% exposure to US-based companies.

Here are the top holdings in RYE:

TickerNameAllocation
HESHess Corp4.98%
TRGPTarga Resources Corp4.88%
MROMarathon Oil Corp4.80%
VLOValero Energy Corp4.77%
PXDPioneer Natural Resources Co4.70%
OOKEOKEOK Inc4.67%
APAAPA Corp4.67%
MPCMarathon Petroleum Corp4.67%
FANGDiamondback Energy Inc4.61%
PSXPhillips 664.60%

And here are some key facts about RYE ETF:

  • MER: 0.40%
  • Number of stocks: 23
  • Dividend yield: 2.49%
  • Distribution frequency: Quarterly
  • 1-year performance: 57.77%
  • Eligibility: All registered and non-registered accounts

As mentioned, RYE trades on US markets so Canadian investors will likely need to pay foreign exchange to buy shares in US dollars.

RYE does provide nice exposure to the S&P 500 energy sector for investors who want to add US-based oil companies to their portfolios.

How To Buy Oil ETFs in Canada in 2022

ETFs are available at most brokerages in Canada. To avoid paying higher fees, check out these discount brokerages to buy Oil ETFs:

Questrade

Questrade is a discount brokerage that offers Canadian investors zero-commission buying for ETFs. You pay a fee when you sell ETF shares.

Questrade

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Trade stocks, ETFs, options, etc.

Low and competitive trading fees

Top platform for advanced traders

Get $50 trade credit with $1,000 funding

QTrade

QTrade offers zero-commission trading for 105 Canadian ETFs. Canadian investors can buy Oil ETFs like HOG and HXE with no trading fees for buying or selling.

Earn cash back when you open an account and fund it.

Qtrade

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Trade stocks, ETFs, options, etc.

Competitive trading fees

Excellent customer service

Some free trades for eligible accounts

Wealthsimple Trade

Wealthsimple Trade has gained popularity in Canada, especially amongst younger investors.

Its mobile and desktop-based investing platforms are easy to use and it offers free ETF and stock trading.

Wealthsimple Trade

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Are Oil ETFs a Good Investment?

The Canadian oil industry has historically been great for Canadian investors to invest in.

Oil ETFs provide investors with exposure to Canadian oil companies, without the volatility of monthly changes in the price of the commodity itself.

Also, Oil ETFs generally have good performance with a solid dividend distribution and reasonable MERs.

Downsides of Oil ETFs and Stocks

The downside of investing in any single sector is that there is a serious downside if there is a negative catalyst.

A great example of this was the COVID–19 pandemic where the price of oil plummeted, and there was an overabundance of oil supply.

Investing heavily into oil stocks or only owning Oil ETFs is the equivalent of putting all your eggs in one basket.

Bonus: Top 5 Oil & Gas Stocks in Canada

Suncor (TSX:SU)

Suncor was founded way back in 1919 and has been a mainstay in the Canadian energy sector ever since.

It specializes in the creation of synthetic crude from oil sands across North America and is one of the largest oil companies in Canada.

Cenovus Energy (TSX:CVE)

Cenovus is another oil company that operates in the oil sands of Canada. It owns several projects across the country and even owns Husky Energy and a couple of sites in the US as well.

Cenovus was established in 2009 after Encana split its operations into two different companies.

TC Energy (TSX:TRP)

Formerly known as Trans Canada Pipeline, TC Energy owns several pipelines across North America including the failed Keystone Pipeline which caused shares to pull back over the past year or two.

Still, it is one of the best dividend payers on the TSX with a dividend yield north of 5.0%.

Enbridge (TSX:ENB)

Another pipeline company and one of the biggest domestic rivals to TC Energy. Enbridge is a massive company with a market cap of nearly $120 billion.

It is one of the largest natural gas pipeline companies in the world and delivers over 20% of the natural gas supply to the United States.

Canadian Natural Resources (TSX:CNQ)

Canadian Natural Resources is an oil and natural gas company that does most of its business in Western Canada.

It also operates several offshore projects in international markets. Canadian Natural Resources is the largest heavy crude oil producer in Canada.

Conclusion: Best Canadian Oil ETFs

The energy sector in Canada has always been a great industry to invest in. With Oil ETFs, Canadian investors no longer need to worry about picking individual oil stocks. They can now have exposure to the entire sector in one basket.

Oil ETFs come in a variety of different types. Some hold Canadian oil stocks, while some hold crude oil futures contracts.

The oil stock ETFs generally pay a decent dividend distribution and have MER that are comparable to most ETFs in the industry.

For a well-diversified portfolio, investors should look to consider adding some of these best Canadian Oil ETFs to their holdings.

Canadian Oil ETF FAQs

What is the best Canadian Oil ETF?

It is hard to pick just one but it would be between ZEO and XEG. Both have an MER of 0.61% and offer exposure to the blue-chip Canadian energy stocks. ZEO has a slightly higher dividend yield which makes it more appealing.

What is a leveraged Oil ETF?

A leveraged Oil ETF has a multiplier attached to its returns. If it is a 2X leveraged Oil ETF like HOU, then a 25% return will be 50% instead. Using the same logic, a 25% drop would be a negative return of 50%. Leveraged ETFs are generally considered to be much riskier due to their volatility.

Is there an Oil ETF that shorts Oil Companies?

Yes! Try looking at an ETF like the BetaPro Crude Oil inverse Leveraged Daily Bear ETF (HOD). An inverse ETF gains when the index or sector it tracks declines in value.

Do Oil ETFs pay dividends?

Most of them do, although Oil ETFs that only track futures contracts do not pay dividend distributions. Canadian oil stocks pay some of the highest dividend yields on the Toronto Stock Exchange, so naturally, oil ETFs on the TSX also pay a generous distribution.

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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