What Is the Best Vanguard ETF to Own During an Oil Shock?
Key Points
The Vanguard Energy ETF holds over 100 energy stocks.
Its top holdings are the three biggest oil companies.
It has meaningful upside potential if oil prices remain high.
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The global economy is experiencing its largest supply shock in decades. Before the war with Iran, 20% of global crude supplies passed through the Strait of Hormuz each day. Today, it's down to a trickle as Iran has cut off that key waterway to tanker traffic by attacking ships. As a result, crude prices have surged, with Brent oil, the global benchmark, nearly doubling in price this year at one point.
Investing in oil stocks is a smart strategy during an oil shock. Vanguard makes this easy through the Vanguard Energy ETF (NYSEMKT: VDE).
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A top energy ETF
The Vanguard Energy ETF holds over 100 energy stocks. However, the largest energy companies by market cap rank as its top holdings. ExxonMobil has the highest weighting at 22.6%, followed by Chevron at 15%, and ConocoPhillips at 5.8%. This trio of big oil stocks currently comprise a whopping 43.4% of its assets. As a result, the fund provides significant exposure to the upside of higher oil prices. Other top holdings include natural gas pipeline companies, oil-field service companies, and oil refiners.
The fund's heavy exposure to the biggest oil stocks has really paid off this year. Shares of the Vanguard Energy ETF are up more than 25% year to date. That compares to a nearly 4% decline in the S&P 500.
The fund has significant upside potential if oil prices remain high. As noted, crude prices have nearly doubled this year. However, the fund's four largest oil stocks are only up 35% to 38% this year, reflecting the belief that the war could end soon, which could cause crude prices to give back much of their gains. If the war reescalates and additional energy infrastructure in the Persian Gulf gets damaged, oil prices could remain high for a while. That would give oil stocks the fuel to keep rallying, benefiting the Vanguard Energy ETF.
Should you buy stock in Vanguard World Fund - Vanguard Energy ETF right now?
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Matt DiLallo has positions in Chevron and ConocoPhillips. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.
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