Beyond Oil: Energy ETFs Worth Investing in for Long-Term Growth

Oil Prices Ride a Geopolitical Roller Coaster

The volatile swings in oil prices are evident in the performance of West Texas Intermediate (WTI) crude and Brent crude. WTI, the U.S. benchmark, has gained around 15% over the past month but declined approximately 5.9% over the past five trading sessions. Meanwhile, Brent crude, the global benchmark, has advanced around 14.8% over the past month but fallen nearly 5.3% over the past five trading sessions.

Both benchmarks have declined over the past three months, with WTI and Brent down around 8.5% and 9.8%, respectively. These sharp fluctuations underscore the uncertainty that has characterized oil prices since the conflict began.

Oil price volatility is unlikely to ease anytime soon, as ambiguous and uncertain diplomatic talks between Washington and Tehran show little sign of reaching a resolution in the near term, continuing to cloud the outlook for the conflict and the global oil market.

As a result, investors may find greater value in looking beyond oil and broadening their exposure across the evolving energy landscape.

Long-term Investment Opportunity or a Short-Term Gamble?

Reinforcing the case for diversification across the broader energy landscape are investing experts, who caution that the substantial gains from the current oil rally could prove difficult to sustain, as quoted on CNBC. Holding on for too long could prove costly for investors.

Since early March, crude has swung from nearly $120 a barrel to as low as $72, with prices seesawing sharply within that broad range and occasionally making dramatic moves in a single day.

As per investing experts, as quoted on the abovementioned CNBC article, much of the recent upside stems from short-term bets rather than fundamental improvements, suggesting that long-term investors may be better served by exploring opportunities across other areas of the energy sector.

Reinforcing the view that oil price bets driven by geopolitical developments tend to be more speculative than long-term investments, ETF.com’s Dave Nadig cautions that investors betting on oil driven by geopolitics are not investing, but gambling, as quoted on the mentioned article.

Adding to the challenges faced by long-term investors who take a reactionary approach to geopolitical developments, Bryan Armour, Morningstar’s director of ETF and passive strategies research for North America cautions that volatility can turn against investors just as quickly as it has worked in their favor, per the CNBC article.

Energy ETFs to Capture the Broader Energy Opportunity

Below, we have highlighted a few fund areas that investors can consider to broaden their exposure across the energy landscape, moving beyond oil and crude to build a more diversified energy portfolio.

Natural Gas ETFs

As mentioned in the abovementioned article, Aniket Ullal, CFRA’s head of ETF research & analytics, favors greater exposure to natural gas, citing its long-term demand outlook. He expects AI-driven growth in data centers to support natural gas demand as more facilities come online.

Investors can consider United States Natural Gas Fund LP UNG and ProShares Ultra Bloomberg Natural Gas BOIL.

Energy Infrastructure ETFs

CFRA’s Ullal also sees potential in infrastructure ETFs, including the Alerian MLP ETF AMLP and First Trust North American Energy Infrastructure Fund EMLP, citing their promising outlook and exposure to the broader energy infrastructure theme.

These funds provide exposure to critical energy infrastructure assets, including pipelines and storage facilities, that support the transportation, processing and storage of oil, natural gas and natural gas liquids.

Nuclear Energy ETFs

Beyond the immediate oil trade, rising power demand from energy-intensive AI data centers and energy-security concerns are creating a compelling long-term case for nuclear energy. Nuclear power is capable of supporting the AI era and the modern digital economy.

ETF.com’s Nadig highlighted uranium and related nuclear energy ETFs as another AI-powered trade that could offer promising long-term prospects, despite the sector remaining under pressure, as quoted on the abovementioned article.

Investors can consider First Trust Bloomberg Nuclear Power ETF RCTR and VanEck Uranium and Nuclear ETF NLR. As the focus on nuclear energy continues to grow, these ETFs offer investors a compelling way to gain long-term exposure to the sector’s expanding opportunities.

Broader Clean Energy ETFs

The closure of critical waterways, which is constraining energy shipments and fueling volatile price swings, underscores the growing need for energy security and diversification. Coupled with the tech sector’s surging energy needs, these trends are strengthening the case for renewables and other low-carbon energy sources, creating a compelling long-term opportunity across the broader clean energy sector.

Investors can consider iShares Global Clean Energy ETF ICLN and First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN.

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This article originally published on Zacks Investment Research (zacks.com).

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