Are unpredictable energy markets threatening your portfolio?
Volatility in the energy sector has been extreme over the last several years. One year energy plunges, then rockets back up the following year. If investors aren’t prepared for those drastic ups and downs, their portfolios can suffer major losses.
The facts:
Diversification is key in building an investment strategy around energy. Energy sector portfolio diversification used to be considered optional, but with recent market swings it’s necessary.
When a portfolio lacks diversified energy exposure, one market disruption can erase weeks or months of gains.
What you’ll learn:
- Why Energy Markets Are So Volatile
- How Volatility Impacts Investment Strategy
- 5 Alternative Strategies To Diversify Energy Portfolios
- Which Strategies Are Right For You?
Why Energy Markets Are So Volatile
The energy sector has historically been prone to volatility. Even during relatively calm years, energy prices have witnessed double digit moves in either direction.
But these last few years have been something else entirely.
Let’s look at a few numbers…
The Energy sector within the S&P 500 finished 2020 with a return of -33.68% before exploding higher to a +65.72% return in 2022. It then retreated again to only a 5.7% gain in 2024. These are the types of radical moves that make investors want to take a closer look at energy sector portfolio diversification.
There are a lot of factors driving energy market volatility. Political tensions, policy changes, supply chain issues, and renewable energy are just a few of the headline risks. Oil prices ranged from $66 to $87 per barrel throughout 2024. In 2025, crude oil rose above $80 in January, then fell back below $60 by May.
Price volatility like this makes it extremely difficult to maintain a concentrated energy position. That’s why working with specialized energy financial services that understand how to navigate these markets can help build a smarter, more diversified energy portfolio.
Expect volatility in energy markets to continue throughout the foreseeable future.
How Volatility Impacts Investment Strategy
Investing in energy used to be simple. Buy some oil and gas stocks, hold them for decades, and collect dividends along the way.
That strategy doesn’t work anymore.
Volatility has disrupted traditional energy investing strategies. The “buy and hold” mentality is being replaced by diversified approaches that spread energy investments across multiple sub-sectors and asset types.
Successful investors are looking beyond just oil and gas. Many are pairing traditional energy stocks with renewable energy exposure, infrastructure, and alternative investments.
And investments in the energy transition reached a record $2.3 trillion in 2025, according to BloombergNEF. That’s up 8% from 2024. Money is flooding into renewables and other forms of energy.
This trend reveals a clear narrative — energy sector portfolio diversification has become a must for investors who want to maximize returns and mitigate risk over the long-term.
5 Alternative Strategies To Diversify Energy Portfolios
Now it’s time to get into the 5 strategies that are changing the way investors approach energy today.
Renewable Energy Assets
Renewable energy is booming. And it shows no signs of slowing down.
Global solar capacity has increased by more than 160% in just the past 5 years. By including renewable energy assets in a portfolio, investors can gain exposure to a fast-growing sector that frequently trades independently of traditional energy markets.
This can be a huge benefit when oil prices are fluctuating 20% or more in a matter of weeks. Renewable energy can help smooth out that volatility.
Renewable energy doesn’t just mean solar. There are solar specific funds, wind energy stocks, and even clean energy ETFs. Any of these can provide solid renewable energy exposure to help diversify an energy portfolio.
Midstream Energy Investments
Midstream energy companies are the unsung heroes of the energy sector. These companies handle the transportation, storage, and processing of energy products.
Midstream investments are great for building out an energy portfolio because they tend to generate stable, predictable cash flow no matter which way commodity prices move.
It’s like they have toll roads that energy must pay to travel on. Whether prices are high or low, that traffic will continue to move through their pipelines.
Private Energy Funds
Private energy funds allow investors to gain exposure to deals not typically accessible to retail investors. Private energy funds can invest in anything from drilling programs to renewable energy startups.
It’s important to note that investing in private energy funds usually comes with longer hold periods and higher minimum investments. But for those who can participate, they can be a great way to diversify an energy portfolio.
Commodity Linked Instruments
Futures contracts, options, and commodity ETFs allow investors to profit from price movements in the energy markets without actually owning the underlying assets.
These instruments can also be used to hedge against portfolio losses should energy prices move unfavorably. When used properly, futures, options, and commodity ETFs can be very effective tools when looking to manage risk.
Clean Energy Debt/Bonds
Green bonds and clean energy debt are quickly gaining popularity. These instruments allow investors to earn steady fixed-income like returns, while still maintaining exposure to the energy sector.
Issuance of energy transition debt rose to $1.2 trillion in 2025. That’s a 17% increase from 2024. As more financial institutions launch their own offerings, these products are becoming more accessible.
Which Strategies Are Right For You?
Every investor is different, and not every strategy will be ideal for every situation.
What’s important to understand is that energy sector portfolio diversification is about reducing risk without sacrificing returns. A diversified energy portfolio should include a combination of strategies that align with financial goals, risk tolerance levels, and investment time horizon.
Some investors may want to focus more on renewable energy and solar. Others might prefer midstream investments or bonds. There’s no one right answer.
But don’t let that lead to inaction…
Not diversifying energy investments is a decision in and of itself. Without plans to diversify how investments are allocated in energy, the risk increases significantly if things don’t go as expected.
Don’t Forget:
- Energy sector volatility is here to stay.
- Traditional investing strategies no longer cut it.
- Pair traditional energy stocks with alternative investments.
- Renewable energy and midstream are two of the best ways to diversify.
- There’s a diversification strategy out there for every investor.
By diversifying investments across multiple energy sectors and asset classes, a portfolio has a much better chance to succeed no matter how energy markets move.
Peyman Khosravani is a global blockchain and digital transformation expert with a passion for marketing, futuristic ideas, analytics insights, startup businesses, and effective communications. He has extensive experience in blockchain and DeFi projects and is committed to using technology to bring justice and fairness to society and promote freedom. Peyman has worked with international organizations to improve digital transformation strategies and data-gathering strategies that help identify customer touchpoints and sources of data that tell the story of what is happening. With his expertise in blockchain, digital transformation, marketing, analytics insights, startup businesses, and effective communications, Peyman is dedicated to helping businesses succeed in the digital age. He believes that technology can be used as a tool for positive change in the world.
