Is an Oil & Gas ETF or a Solar Stock Fund the Better Buy in 2026?

The State Street Energy Select Sector SPDR ETF (NYSEMKT:XLE) offers low-cost, mature energy exposure with lower volatility, whereas the Invesco Solar ETF (NYSEMKT:TAN) provides high-conviction, volatile access to the solar industry.

While both funds represent the energy sector, they focus on very different sub-industries. XLE tracks traditional fossil fuel giants and energy services within the S&P 500, whereas TAN targets the specialized solar supply chain. This comparison helps investors determine if they prefer broad energy stability or niche renewable growth potential.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield as of the close of trading on July 23.

XLE is significantly more affordable for investors, sporting an expense ratio of 0.08% compared to the 0.7% charged by the Invesco fund. This cost advantage allows a larger portion of returns to compound within the fund over time.

Performance & risk comparison

What's inside

The State Street Energy Select Sector SPDR ETF holds 21 companies, providing 100% exposure to the energy sector. Its largest positions include Exxonmobil Holdings (NYSE:XOM) at 20.3%, Chevron (NYSE:CVX) at 14.4%, and ConocoPhillips (NYSE:COP) at 5.9%. This fund was launched in 1998 and is engineered to mirror the price appreciation and dividend income of the Energy Select Sector Index. It grants precise access to oil, natural gas, and consumable fuel firms.

The Invesco Solar ETF maintains a portfolio of 36 holdings, focusing exclusively on the solar industry with exposure to sectors such as technology at 62%, utilities at 29%, and industrials at 6%. Top holdings include Nextpower (NASDAQ:NXT) at 10.3%, First Solar (NASDAQ:FSLR) at 9.3%, and Enphase Energy (NASDAQ:ENPH) at 7.2%. The fund was launched in 2008 and tracks the MAC Global Solar Energy Index, committing at least 90% of its capital to solar-related equity instruments.

Which fund is the better buy?

These two ETFs take a very different approach to investing in the energy business. The State Street fund, XLE, holds the biggest names in the U.S. oil and natural gas industry, providing exposure to producers and retailers like ExxonMobil and Chevron. About half the fund is in large-cap stocks.

The Invesco fund, TAN, meanwhile, is a renewable energy-focused fund built around solar stocks. That makes it stylistically more diverse than XLE. TAN’s portfolio doesn’t hold any large cap stocks and it 53% in small caps and 47% in mid caps. The ETF also invests beyond America’s borders, with 36% of its holdings in developed, non-U.S. markets and about 13% in emerging markets.

In some ways, deciding between these funds is a decision about whether you believe renewable energy will continue to grow in importance or if fossil fuels in the U.S. will continue to dominate. Solar is now the cheapest way to produce electricity on a utility scale, according to the investment bank Lazard. But U.S. oil and gas stocks benefit from the rise in global prices from the Iran war, meaning they should be able to bring in more net income due to elevated prices at the gas pumps.

Performance-wise, TAN bests XLE in the 10-year time frame, returning an annualized 11.8% compared to 8.9% for XLE. But in the 3- and 5-year look-backs, TAN has lost money, reflecting the volatility in the global solar market brought on by rising interest rates (which affect the viability of financing large solar farms). TAN has lost 5.9% and 7.9% over the past three and five years, respectively. XLE, meanwhile, returned 13% and 18.9% over its past three and five years.

With solar on an irreversible long-term uptrend, in terms of global share of energy production, TAN is the choice for long-term investors who can ride out short-term bumps in the road over interest rates, tariffs, and federal government policy favoring fossil fuels.

For more guidance on ETF investing, check out the full guide at this link.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron, First Solar, and Nextpower. The Motley Fool recommends ConocoPhillips and Enphase Energy. The Motley Fool has a disclosure policy.