Best Oil ETF to Buy

With the recent energy boom, a lot of investors want to know what the best oil ETF to buy is in order to take full advantage of this bull energy market. In addition, similar to other commodity investments such as ETF gold funds, investors are eager to know whether investing in individual oil stocks, including the best penny stocks and microcap stocks is a better strategy to yield a higher return overall.

In short I'd say both methods will work for you, whether buying a good oil etf or a dozen quality oil stocks; it's really more what type of investor you are and how much time and energy you are able to put in to maintaining your energy stock portfolio.

For the purpose of this hub however, I'm going to focus on the oil ETF. Now there are a lot of different opinions as to which is the best oil or energy ETF so please take my opinion as just that. However I personally believe the best oil ETF to buy right now is the iShares CDN Energy Sector Index (CA:XEG). The XEG trades on the Toronto Stock Exchange (TSX). Now there are probably two things that will jump out at you right away. One is that it's a Canadian ETF and trades on a Canadian stock market and number two is that it really isn't an oil ETF but an energy ETF.

So let's tackle the first point, why invest in a Canadian Oil ETF versus a U.S. ETF or International ETF? Well, Canada has a lot going for it these days which is one of the reasons why it's currency has really taken off (along with its stock market). The main reason for the increase in the Canadian dollar is that it's considered a petro currency. In essence, the CDN dollar is rising largely because the price of oil is rising and Canada is extremely rich in natural resources, and oil in particular. The other thing that Canada has going for it is that it also has a relatively strong and stable economy with very little political instability unlike some other oil producing countries.

The second thing about the XEG is that it's not a pure oil ETF, but rather an energy ETF. The thing is though, the majority of this ETF is made up of oil stocks anyway. The top three holdings are Suncor, Encana, and Canadian Natural Resources which make up about 50% of the ETF. The remaining stocks are smaller oil companies and other types of energy stocks such as Natural Gas companies.

So to sum up, if you ask 5 different investors which is the best oil etf to buy, you may end up with 5 different answers, but whatever you decide make sure you understand why you are deciding on a particular ETF over another and always try to keep your portfolio balanced among the sectors to diversify risk.