In recent years, the energy sector has been through major
upheavals attributable to a series of unwanted episodes in the
global economy. Starting from the oil spill in the Gulf of Mexico
to the broader European debt crisis, these events have
collectively resulted in huge volatility in the energy sector (
Two Energy ETFs Holding Their Ground
In fact, energy-based
were hard hit during 2012 due to a sluggish oil market. For most
of 2012, energy ETFs were in the red with some recovery witnessed
only in the latter part of the year.
A rebound in energy prices in the second half gave some life
to energy ETFs though, with some strong performances pushing the
space higher. This continued in the start of 2013 only to shed
most of the gains as the year progressed, thereby trailing the
broader market index.
However, as oil prices have come back a bit in recent trading,
some are optimistic about a broader recovery in the space heading
into the summer. In fact last week the sector came out second
best after technology suggesting to some that a recovery may be
underway in the space.
What's Behind the Surge?
Recently the dollar, having gained strength against other
world currencies for much of 2013, has finally lost its momentum.
This led to a rise in oil prices which inevitably benefited
energy companies. Also, strong earnings reported by some of the
oil and gas producer companies led to a rally in the S&P
The surge in the energy sector is mainly due to a rise in U.S.
oil production. The U.S. which is the largest consumer of oil has
spurred energy production by leaps and bounds. This has indeed
given a strong boost to energy stocks and ETFs. This is
especially true for the companies engaged in the drilling and
extraction of oil (
Energy ETFs: Strong Start to 2013
Also, innovative technologies along with streamlined
industrialization are assisting in ramping up the production of
oil in the U.S. Exploitation of resources like shale, natural gas
and fossil fuel are driving investors towards the energy
ETFs to Watch
The strong fundamentals in the energy sector are positively
Energy Select Sector SPDR Fund (
. XLE, after recording a very subtle return for most of the year,
finally seems to be gaining strength backed by strong energy
sector momentum. In fact, the ETF is just slightly behind the
broader market index.
XLE is one of the most popular ways to tap the energy sector.
Given the current bullish trend in oil production in the U.S.,
this ETF represents an effective way to capitalize on the
strength as oil companies play a substantial role in the
performance of the fund (read
5 Sector ETFs Surging to Start 2013
Oil Gas & Consumables Fuels companies form 79.06% of the
ETF portfolio while the rest goes to energy equipment &
services. The high level of concentration in the oil sector
companies could prove to be a boon for the fund if oil prices
gain momentum further.
The fund since the start of the year has posted gains of
13.08%. This is a huge gain when compared with the overall 2012
gain of 5.21% (
Time to Buy Energy ETFs?
The ETF is home to 46 stocks in which it invests an asset base
of $7.7 billion. The fund appears to be highly concentrated as it
is 60% dependent on the top ten holdings for its performance.
In fact, two oil giants, Exxon and Chevron, take up nearly 32%
of the asset base. The fund charges a fee of 18 basis points
The fund is trading near its all time high. In the Tuesday
trading session, the ETF touched the $80.98 mark which is a penny
higher than what the fund had recorded post crisis in Mar 2011 (
Three ETFs for The Energy Efficiency Boom
Investor should also note that XLE appears to be cheap
relative to the broader U.S. market as indicated by its P/E.
Therefore it is pretty inexpensive compared to other industries.
XLE has a P/E ratio of 13.09 as compared to the P/E ratio of
SPDR S&P 500 ETF (
iShares U.S. Energy ETF (
IYE offers a broader exposure to oil and gas companies in
which Oil & Gas Producers form 74.68% of the fund while Oil
Equipment, Services & Distribution companies take 25.11% of
the asset base.
The fund is home to 88 securities in which it invests an asset
base of $1.2 billion. The fund is heavily invested in the top ten
holdings as revealed by its concentration level of 63.6% (
Three ETFs With Incredible Diversification
Among individual holdings, Exxon, Chevron and Schlumberger
form the top line of the fund. All the three companies get a
share of 43.57% in total in the fund. The fund charges a fee of
46 basis points. In the year-to-date period, the fund has
delivered a return of 6.1%.
Market Vectors Oil Services ETF (
OIH appears to be quite popular among investors as revealed by
its trading volume of more than 3 million shares a day. The fund
since its inception in Dec 2011 has been able to build an asset
base of $1.7 billion (
Oil Bull Market Is No Place For MLP ETF
The fund appears to invest its rich asset base in a holding of
26 securities which are mostly large cap companies. However, the
fund has not been able to minimize company-specific risk as 67.1%
of the asset base goes towards the top ten holdings.
The fund has assigned heavy weighting to the top two holdings
namely Schlumberger Ltd and Halliburton Co. The allocation to the
two companies stand at 27.7%. The fund charges a fee of 35 basis
The performance of the fund after the recent rise in oil
production has been striking. The fund delivered a return of
15.87% in the year-to-date period.
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ISHARS-DJ EGY (IYE): ETF Research Reports
MKT VEC-OIL SVC (OIH): ETF Research Reports
SPDR-EGY SELS (XLE): ETF Research Reports
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