Evaluating the performance of energy exchange-traded funds

D. K. Malhotra and Michael Marino

Abstract

This study evaluates the performance of energy exchange-traded funds (EETFs) from January 2000 to August 2022. We find that the average monthly returns of EETFs have relatively high correlation with those of US and global equities. Absolute performance, as assessed by average monthly returns, showed that EETFs outperformed US equities as well as global markets over the period 2000–2022. In terms of risk-adjusted performance, EETFs slightly outperformed the Standard & Poor’s 500 (S&P 500) Energy index and US and global equities. EETFs, as they focus on the energy sector, can provide positive returns for investors during times of economic turmoil, as evidenced by the positive net alphas seen during the 2007–9 global financial crisis. However, the Covid-19 pandemic had a significant impact on the energy sector, causing both EETFs and the S&P 500 Energy index to perform poorly. As economies began to recover from the pandemic-induced lockdowns and demand for energy increased, both EETFs and the S&P 500 Energy index rebounded and again outperformed traditional stock markets.