The energy sector is emerging as a lucrative avenue for investors eager to enhance their passive income streams. Following a challenging period where energy stocks lagged behind the S&P 500 in 2025, these stocks are experiencing a significant rebound in 2026. As oil prices begin to recover from their lows of mid-December 2025, fueled by escalating geopolitical tensions, many investors are shifting their focus from growth-oriented stocks to more value-driven and dividend-paying sectors.
For those looking to gain exposure to the energy market, exchange-traded funds (ETFs) present a practical solution. Among the standout options are the Vanguard Energy ETF (VDE), the Energy Select Sector SPDR ETF (XLE), and the SPDR S&P 500 Oil & Gas Exploration and Production ETF (XOP), each offering compelling opportunities for an investment of $2,000.
The Vanguard Energy ETF and the Energy Select Sector SPDR ETF are largely comparable, both designed to provide extensive coverage of the U.S. energy sector. Vanguard’s fund, managed by the well-respected investment management firm Vanguard, has an expense ratio of 0.09%, slightly higher than the 0.08% charged by the State Street-managed Energy Select Sector ETF. These ratios are notably lower than that of BlackRock’s iShares U.S. Energy ETF, which charges 0.38%.
Both funds are significantly weighted towards three key players in the sector: ExxonMobil, Chevron, and ConocoPhillips, which together constitute over 44% of the Vanguard ETF and a whopping 48.6% of the Energy Select Sector ETF. Consequently, both funds offer nearly identical dividend yields—3.1% for Vanguard and 3.3% for State Street—making them excellent choices for those seeking broad exposure to integrated oil and gas giants.
Investors interested in a more diversified approach might consider the SPDR S&P 500 Oil & Gas Exploration and Production ETF. While primarily focused on upstream activities within the oil and gas value chain, the fund’s portfolio also includes a notable percentage in refining and marketing (20.2%) and integrated companies like ExxonMobil and Chevron (8.6%). This broader scope introduces a level of volatility, potentially offering higher returns should oil prices ascend further.
Unlike the other two ETFs, the Exploration and Production ETF is less reliant on a few major stocks, with no single stock exceeding a 4% holding. This characteristic could appeal to investors who already possess significant shares of ExxonMobil or Chevron and want to diversify without substantial overlap in holdings.
Although the SPDR S&P 500 Oil & Gas Exploration and Production ETF charges a premium with its expense ratio of 0.35% and manages just over $2 billion in assets, it stands as a unique option for investors keen on expanding their portfolios with a specialized focus on upstream oil and gas stocks. Notably, it also offers a respectable yield of 2.6%, significantly outpacing the S&P 500’s average yield of 1.1%, thereby providing additional incentive for investors seeking passive income.
In summary, with various ETFs catering to different needs within the energy sector, investors have multiple pathways to capitalize on the sector’s resurgence. Whether opting for the broad coverage of the Vanguard or State Street funds, or the more niche focus of the SPDR Exploration and Production ETF, there are substantial opportunities for generating passive income in this dynamic environment.
