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 2023.
What is an Oil ETF?
For investors who want exposure to stocks in the Canadian or global 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 steadily increase the ETF’s stake.
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 2023.
Best Oil ETFs in Canada for 2023
- 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)
- Horizons Canadian Oil and Gas Equity Covered Call ETF (ENCC)
- Vanguard Energy ETF (VDE)
Horizons Crude Oil ETF (HUC)
HUC was established by Horizons ETFs back in 2009 and 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: 0.88%
- Number of stocks: 1 (consisting of crude oil futures contracts
- Dividend yield: N/A
- Distribution frequency: N/A
- 1-year performance: 26.52%
- 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.
This Blackrock iShares Canadian oil ETF 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 the top holdings by allocation in XEG as of January 2023:
| Ticker | Name | Allocation |
| CNQ | Canadian Natural Resources LTD | 25.90% |
| SU | Suncor Energy Inc | 21.86% |
| CVE | Cenovus Energy Inc | 12.94% |
| TOU | Tourmaline Oil Corp | 7.28% |
| IMO | Imperial Oil Corp | 4.47% |
| ARX | Arc Resources LTD | 3.75% |
| WCP | Whitecap Resources INC | 2.47% |
| MEG | MEG Energy Corp | 1.99% |
| ERF | Enerplus Corp | 1.98% |
| CPG | Crescent Point Energy Group | 1.98% |
Broken down by subsectors, 58.51% of the fund is dedicated to oil and gas exploration and production, while 39.27% 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: 0.60%
- Number of stocks: 29
- Dividend yield: 2.85%
- Distribution frequency: Quarterly
- 1-year performance: 53.17%
- 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 2.85% dividend yield quarterly and has a higher MER of 0.60%.
BMO Equal Weight Oil and Gas Index ETF (ZEO)
ZEO is an ETF from the BMO global asset management group 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 by allocation in ZEO as of January 2023:
| Ticker | Name | Allocation |
| IMO | Imperial Oil LTD | 11.24% |
| CNQ | Canadian Natural Resources LTD | 11.10% |
| CVE | Cenovus Energy INC | 11.02% |
| SU | Suncor Energy Inc | 11.0% |
| PPL | Pembina Pipeline Corp | 10.05% |
| ENB | Enbridge Inc | 9.79% |
| KEY | Keyera Corp | 9.76% |
| TRP | TC Energy Corp | 8.95% |
| ARX | ARC Resources LTD | 8.76% |
| TOU | Tourmaline Oil Corp | 8.07% |
And here are some key facts for ZEO:
- MER: 0.61%
- Number of stocks: 11
- Dividend yield: 7.88%
- Distribution frequency: Quarterly
- 1-year performance: 39.46%
- 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 by allocation in HXE as of January 2023:
| Ticker | Name | Allocation |
| CNQ | Canadian Natural Resources Ltd | 24.75% |
| SU | Suncor Energy Inc | 21.47% |
| CVE | Cenovus Energy Inc | 13.46% |
| TOU | Tourmaline Oil Corp | 8.04% |
| ARX | Arc Resources Ltd | 4.31% |
| IMO | Imperial Oil Ltd | 4.28% |
| WCP | Whitecap Resources Inc | 2.43% |
| ERF | Enerplus Corp | 2.05% |
| CPG | Crescent Point Energy Corp | 1.99% |
| MEG | MEG Energy Corp | 1.90% |
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: 54.59%
- 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 by weighted allocation in HOG as of January 2023:
| Ticker | Name | Allocation |
| EFX | Enerflex Ltd | 9.32% |
| SES | Secure Energy Services Inc | 9.15% |
| KEY | Keyera Corp | 8.50% |
| PPL | Pembina Pipeline Corp | 8.40% |
| ALA | Altagas Ltd | 8.36% |
| PKI | Parkland Corp | 8.30% |
| TRP | TC Energy Corp | 8.21% |
| GEI | Gibson Energy Inc | 8.14% |
| ENB | Enbridge Inc | 8.13% |
| TWM | Tidewater Midstream and Infrastructure Ltd | 8.02% |
Here are the key facts for the HOG ETF:
- MER: 0.65%
- Number of stocks: 12
- Dividend yield: 3.78%
- Distribution frequency: Quarterly
- 1-year performance: 15.94%
- Eligibility: All registered and non-registered accounts
HOG has not performed as well as ETFs with oil producers in them. The ETF has had an average annualized return of 4.21% since its inception.
HOG does pay a good dividend yield at 3.78% every quarter.
While the returns have not been as high, the transport and storage of crude oil have 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: 1.34%
- Number of stocks: 1 (crude oil futures contracts)
- Dividend yield: N/A
- Distribution frequency: N/A
- 1-year performance: 22.28%
- 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 1.34% MER for HOU is extremely high, especially given the fact that it does not pay any distributions or dividends.
Horizons Canadian Oil and Gas Equity Covered Call ETF (ENCC.TO)
Yet another Horizons Canadian Oil ETF, ENCC, was established in April 2011 and trades on the TSX.
It is not your typical ETF as it is one of a growing number of covered call ETFs. In these ETFs, the fund manager actively sells covered calls against held positions to earn a premium which is then paid back to shareholders as a dividend.
In exchange for stability and frequent and high dividend payouts, coveted call ETFs typically come with a higher-than-normal MER.
Here are the top holdings by weight in ENCC as of January 2023:
| Ticker | Name | Allocation |
| CVE | Cenovus Energy Inc | 10.99% |
| CNQ | Canadian Natural Resources Ltd | 10.59% |
| IMO | Imperial Oil Ltd | 10.53% |
| SU | Suncor Energy Inc | 10.46% |
| ARX | ARC Resources Ltd | 10.17% |
| PPL | Pembina Pipeline Corp | 9.86% |
| ENB | Enbridge Inc | 9.76% |
| KEY | Keyera Corp | 9.68% |
| TOU | Tourmaline Oil Corp | 8.79% |
| TRP | TC Energy Corp | 8.72% |
And here are some key facts about ENCC:
- MER: 0.84%
- Number of stocks: 10
- Dividend yield: 13.66%
- Distribution frequency: Monthly
- 1-year performance: 40.10%
- Eligibility: All registered and non-registered accounts
Canadian investors looking to invest in USO will have to buy shares in US dollars.
Vanguard Energy ETF (VDE)
VDE is the US-domiciled Vanguard Energy ETF that trades on the NYSEARCA exchange. It was established in September 2004 and holds over $10.5 billion in total net assets.
This ETF holds 100% American-based oil and gas companies, with 111 stocks that have a median market capitalization of $75.8 billion.
Here are the top holdings by weight in VDE as of January 2023:
| Ticker | Name | Allocation |
| XOM | Exxon Mobil Corp | 22.49% |
| CVX | Chevron Corp | 16.14% |
| COP | ConocoPhillips | 6.89% |
| EOG | EOG Resources Ltd | 3.84% |
| SLB | Schlumberger Ltd | 3.83% |
| MPC | Marathon Petroleum Corp | 3.15% |
| OXY | Occidental Petroleum Corp | 2.98% |
| PXD | Pioneer Natural Resources Co | 2.63% |
| VLO | Valero Energy Corp | 2.59% |
| PSX | Phillips 66 | 2.54% |
And here are some key facts about VDE ETF:
- MER: 0.10%
- Number of stocks: 111
- Dividend yield: 2.96%
- Distribution frequency: Quarterly
- 1-year performance: 62.89%
- Eligibility: All registered and non-registered accounts
As mentioned, VDE trades on US markets so Canadian investors will likely need to pay foreign exchange to buy shares in US dollars.
How To Buy Oil ETFs in Canada in 2023
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 small fee when you sell ETF shares.
This platform also offers stocks, bonds, mutual funds, options, currencies, and more.
Questrade
Trade stocks, ETFs, options, etc.
Low and competitive trading fees
Top platform for advanced traders
Get $50 trade credit with $1,000 funding
Wealthsimple Trade
Wealthsimple Trade has gained popularity in Canada, especially amongst younger investors.
Its mobile and desktop-based investing platforms are easy to use, offering free ETF and stock trading.
Wealthsimple Trade
Trade stocks and ETFs for free
Great trading platform for beginners
$25 cash bonus when you deposit $200+
Transfer fees waived up to $150
Qtrade
Qtrade offers zero-commission trading for 105 Canadian ETFs. Canadian investors can buy Oil ETFs like HOG and HXE without trading fees for buying or selling.
Earn cash back when you open an account and fund it.
Qtrade
Up to $150 sign-up bonus
Trade stocks, ETFs, options, etc.
Competitive trading fees
Excellent customer service
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.
Top 5 Oil and 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.
Pembina Pipeline Corp (TSX: PPL)
Pembina is one of the major oil and gas pipeline companies that operate in Canada. This Calgary company was founded in 1954 and operates throughout North America.
The company operates over 18,000 kilometres of pipelines that transport oil and natural gas around the continent.
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 6.2%.
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 $110 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
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.
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.
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.
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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