Interactive Investor

Which ETFs were the best way to play the oil rally?

9th July 2021 10:14

Tom Bailey from interactive investor

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Investors can use ETFs to either track the price of oil or buy energy shares. 

One of the defining features of markets so far this year has been the recovery of oil prices. This trend extends back into 2020. However, measured from the start of the year, oil prices have risen by roughly 50%.

The price of crude has been buoyed by the global economic recovery. As economic activity picks up, demand for the commodity increases. However, compounding the price rise has been the inability of OPEC and other oil producers to reach an agreement to increase their output. So demand has risen in the face of constricted supply.

For investors, the simplest way to play this has been to use an exchange-traded community (ETC) tracking the price of oil. And this has paid off. Year-to-date, the WisdomTree Brent Crude Oil ETC (LSE:BRNT) has returned 46.4%, in sterling terms. Similarly, the WisdomTree WTI Crude Oil ETC (LSE:CRUD) returned 49.7%.

However, this is not the only way for investors to play the oil rally. One popular option is to use an ETF tracking a basket of oil or energy stocks. This has paid off depending on the region. So, for example, the SPDR® MSCI World Energy ETF (LSE:WNRG) has returned just over 30%. This tracks a basket of global energy stocks.

A less profitable way was to gain exposure to European producers. For example, the SPDR® MSCI Europe Energy ETF EUR (LSE:ENGY) returned just over 14%, almost half the return of global energy ETFs.

The best region for energy shares, however, was the US. The iShares S&P 500 Energy Sect ETF USD Acc (LSE:IUES), for example, has returned 42%.

Another popular way to play oil price rises is to buy an ETF tracking the index of an oil-heavy economy. This approach has been somewhat rewarding. For example, the Invesco MSCI Saudi Arabia ETF (LSE:MSAU) returned 26.4%. Meanwhile, the HSBC MSCI Russia Capped ETF (LSE:HRUD) has returned 18.2%.

Other investors looking to take advantage of the oil price recovery might have instead opted to buy a broad commodity ETF. There are two reasons for this. First, it proves more diversified exposure than just oil. Second, the economic tailwind that has supported the oil price rise should also apply to other commodities that experience increased demand when the economy is looking up. Those who chose this route using the WisdomTree Enhanced Commodity ETF (LSE: WCOB) would have seen returns of 18.8%, while the L&G All Commodities ETF GBP (LSE:BCOG) is up 17.6%.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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