Oil ETFs - Add An Oil ETF to Your Stock Market Portfolio

Energy and Oil Stocks

One popular way to diversify your portfolio is to add some funds or assets that are not correlated strongly to the overall market. Historically, precious metals like gold or silver were the traditional ways to go about doing this. Typically this was done by actually buying gold bullion or coins, and physically taking possession.

There are many more commodities that would serve to diversify your portfolio as well. Investing in energy and oil stocks are a popular way to do this. Since taking physical possession of oil is not really practical (except for filling your gas tank!), and trading oil futures is not a typical practice of your average investor, investing in oil stocks are the next best thing.

Oil ETFs

However, over the last few years there have been some Exchange Traded Funds introduced that either track the price of oil or some oil proxy, or give you the opportunity to do something more than simply track the price of oil, like add leverage, or effectively short the price of oil by buying the inverse of oil price changes. Let's take a look at a few of these oil ETFs to see which might work for you.

First there are the ETFs that simply track the price of one of the oil benchmarks directly. These include the

USO: United States Oil

UHN: United States Heating Oil

USL: United States 12 Month Oil

OLO: PowerShares DB Crude Oil Long ETN.

OIL: iPath S&P GSCI Crude Oil Total Return Index ETN

Maybe you feel the price of oil is ready to drop. You can always short the oil ETFs, but you typically can't do that in many accounts like an IRA. Never fear, there are ETF's that go up in price as the price of oil drops, once again the daily price change is targeted to go up in percentage approximately as much as the price of oil drops. These include

SZO: PowerShares DB Crude Oil Short ETN

DTO: PowerShares DB Crude Oil Double Short Exchange Traded Note


Feeling Bullish?

Now, if you are really bullish, you may decide that you don't just want the price of your ETF to change with the price of oil, but you want it to be leveraged, and move faster than the price of oil. So, in that case, the leveraged ETFs that change approximately twice as fast as the daily change in oil prices might be what you're looking for. Just keep in mind that they go down about twice as fast as well.

DXO: The PowerShares DB Crude Oil Double Long ETN

UCO: ProShares Ultra DJ-UBS Crude Oil


Oil Sector ETFs

One thing to keep in mind with buying oil instead of oil companies or stocks is that oil doesn't really create value. A company will ideally be generating profits, so there is some revenue and stock profit to be had even if the price of oil doesn't increase. So if trying to get some exposure to the oil sector is more what you had in mind, perhaps because you thought the price of oil was already high, then you may be better served by buying oil sector ETFs that hold shares of companies in the oil sector.

Some of these include:

OIH Oil Service HOLDRS T

IEO iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund

IEZ iShares Dow Jones US Oil Equipment & Services

XES SPDR S&P Oil & Gas Equipment & Services

XOP SPDR S&P Oil & Gas Exploration & Production

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Comments 3 comments

Crude Oil Trader profile image

Crude Oil Trader 6 years ago from Tucson Arizona

Thanks for not including SCO and UCO. It's a crime to point retail traders in that direction. While they are high volume, fluid tickers they should be used by day traders.


C. Whitaker profile image

C. Whitaker 7 years ago from Indianapolis, IN

ETFs seem like a pretty good investment. Are the fees very high on these you have listed?


Research Analyst profile image

Research Analyst 7 years ago

I am glad you wrote this hub about exchange traded funds because many people think that they should not invest in a diversified portfolio and even in a economic recession it is the best action plan to have, as long as you pick the right mutual funds such as energy stocks and other commodities.

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