Should You Invest in the Vanguard Energy ETF (VDE)?

If you’re interested in broad exposure to the Energy – Broad segment of the equity market, look no further than the Vanguard Energy ETF (VDE), a passively managed exchange traded fund launched on 09/23/2004.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Energy – Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 6, placing it in top 38%.

Index Details

The fund is sponsored by Vanguard. It has amassed assets over $5.94 billion, making it one of the largest ETFs attempting to match the performance of the Energy – Broad segment of the equity market. VDE seeks to match the performance of the MSCI US Investable Market Energy 25/50 Index before fees and expenses.

The MSCI US Investable Market Index (IMI)/Energy 25/50 is made up of stocks of large, mid-size, and small US companies within the energy sector.

Cost

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.10%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 4.07%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Energy sector–about 100% of the portfolio.

Looking at individual holdings, Exxon Mobil Corp. (XOM) accounts for about 20.31% of total assets, followed by Chevron Corp. (CVX) and Conocophillips (COP).

The top 10 holdings account for about 62.75% of total assets under management.

Performance and Risk

So far this year, VDE return roughly is 57.20%, and it’s up approximately 57.11% in the last one year (as of 12/28/2021). During this past 52-week period, the fund has traded between $51.48 and $83.72.

The ETF has a beta of 1.70 and standard deviation of 40.54% for the trailing three-year period, making it a high risk choice in the space. With about 96 holdings, it effectively diversifies company-specific risk.

Alternatives

Vanguard Energy ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, VDE is an excellent option for investors seeking exposure to the Energy ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

IShares US Energy ETF (IYE) tracks Dow Jones US Oil & Gas Index and the Energy Select Sector SPDR ETF (XLE) tracks Energy Select Sector Index. IShares US Energy ETF has $2.48 billion in assets, Energy Select Sector SPDR ETF has $26.35 billion. IYE has an expense ratio of 0.41% and XLE charges 0.12%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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Vanguard Energy ETF (VDE): ETF Research Reports

Chevron Corporation (CVX): Free Stock Analysis Report

Exxon Mobil Corporation (XOM): Free Stock Analysis Report

ConocoPhillips (COP): Free Stock Analysis Report

Energy Select Sector SPDR ETF (XLE): ETF Research Reports

iShares US Energy ETF (IYE): ETF Research Reports

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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