ETFs are all the rage, and amid their accelerated growth, the category has spawned numerous new subcategories, which can also sometimes overshadow underrated ETF segments in favor of shorter-term, flashier contenders. Investors may want that upside, but it’s important to also have strong performers over longer time horizons. The duo of energy ETFs FENY and FRNW offer a notable example of how energy ETFs can play that role.
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While energy ETFs can be used to adapt to energy commodity prices, FENY provides a strong long term case, too. The Fidelity MSCI Energy Index ETF (FENY ) tracks the MSCI USA IMI Energy 25/50 Index for an eight basis point (bps) fee. According to Fidelity Investments data, FENY has returned 23.2% over five years on a NAV basis. That thoroughly beat its index benchmark, the S&P 500 TR index, in that time. That performance also outperformed some equity ETFs in areas like tech that some might see as more commonly enticing.
An Underrated ETF Category to Watch
What kind of role, then, might energy ETFs like FENY play looking ahead? Its portfolio, slightly more diversified than rival energy funds, can, of course, be toggled on or off thanks to ETFs’ flexibility and tax efficiency. Its longer term performance, however, may indicate a case to hold the fund. Energy prices continue to fluctuate due to geopolitics, but persistent, secular inflation could make holding a fund like FENY appealing. That diversified portfolio, too, can help it outcompete rival energy strategies when energy prices do fluctuate.
FENY isn’t the only underrated ETF in the category. Looking beyond the headlines, a fund like FRNW can intrigue. The Fidelity Clean Energy ETF (FRNW ) may be facing more policy headwinds than it did a year ago. The fund, which charges a 40 basis point (bps) fee, tracks a global index of clean energy firms. That includes U.S.-based firms facing headwinds, but a majority of those names come from abroad.
Together, that has helped FRNW return more than 25% YTD according to YCharts data, thanks to a summer surge. While the clean energy revolution may stall a bit in the U.S., it won’t stop and may accelerate abroad. That foreign focus could also help the underrated ETF provide a source of diversification, too.
Tech and other equity segment ETFs will continue to play a big role for investors, but energy deserves consideration, too. As demand for electricity grows, for example, both fossil fuel and clean energy sources can benefit. FENY and FRNW together can help build that allocation for investors.
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Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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