After a massive setback in 2012, the U.S. energy sector has
rebounded strongly on the recent surge in oil production and
rising oil prices. Oil production in the U.S, the world's largest
oil consumer, soared to levels not seen in decades.
In fact, the U.S. is expected to surpass both Russia and Saudi
Arabia and become the world's biggest producer of oil over the
next five years. Further, the U.S. could become energy
self-sufficient by 2035 and a net exporter of natural gas by the
end of the decade (read:
3 Energy ETFs for America's Production Boom
Despite the U.S. oil boom, oil giants are seeing shrinking
production volumes while operating costs are rising. As such,
energy has been the biggest laggard this earnings season with
9.4% decline in earnings. This is particularly true given the
disappointing second quarter earnings from the two largest
companies that just reported;
Exxon Mobil (
Energy Earnings in Focus
Last week, the largest U.S. oil company, XOM, posted their
smallest profit in more than three years on lower oil and gas
output and weaker earnings from its refining business.
Earnings declined 19% year over year to $1.55 per share,
missing the Zacks Consensus Estimate of $1.89. Total revenue
decreased 16.4% year over year to $106.5 billion, but beat the
Zacks Consensus Estimate of $101.8 billion.
Meanwhile, Chevron reported lackluster second quarter profits
in four years due to softer market conditions for crude oil and
refined products as well as increased repair and maintenance work
on U.S. refineries.
Earnings per share came in at $2.77, missing the Zacks
Consensus Estimate of $2.96 and the year-ago quarter of $3.66.
Revenues fell 8.4% to $57.37 billion but managed to beat the
Zacks Consensus Estimate by 1.5%.
The lower-than-expected earnings from these two giants have
definitely impacted their share prices. Exxon Mobil lost
more than 2.5% in the single session on the day of its earnings
release (Aug 1) and is now down at around 3% over the past five
On the other hand, CVX lost nearly 2.5% on the day of its
earnings announcement (Aug 2) but closed at a 1.2% drop for the
session. CVX shares tumbled more than 2% over the past five
Nevertheless, the tumble was not as severe in the ETF world as
expected, with energy
managing to hold some gains over the past five trading days
Energy ETFs Rise on Schlumberger Earnings
). Despite the fact that many of the key funds in this segment
have a double-digit allocation to these two oil giants, ETFs had
held up well thanks to encouraging macro prospects and rising oil
Further, though the performance was a disaster for these
companies' stock prices, the short term does not look so bad.
Both stocks have a short-term Zacks Rank of #3 or 'Hold' rating,
suggesting that they are expected to perform with the broader
Below, we have highlighted three popular energy ETFs that are
heavily invested in these oil companies. Investors should closely
monitor the movement in these funds and grab any opportunity from
a continued surge in prices during the months ahead (see more in
iShares U.S. Energy ETF (
This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving
investors exposure to the broad energy space. The fund holds
about 82 stocks in its basket with AUM of over $1.3 billion while
charging a slightly higher fee of 46 bps per year from
Exxon Mobil and Chevron occupy the top two positions in the
basket with 23.45% and 13.95% of assets, respectively, while
others hold less than 6.4% of assets. This suggests that more
than one-third of the fund's performance is highly dependent on
these two oil giants. From a sector perspective, oil & gas
producers make up for three-fourths share while oil equipment,
services and distribution take the remainder.
The fund gained 0.08% over the past five days and is up 15.82%
in the year-to-date time frame. The product has a Zacks ETF Rank
of 3 or 'Hold' rating with a 'Low' risk outlook.
Energy Select Sector SPDR Fund (
The most popular energy ETF on the market, XLE follows the
S&P Energy Select Sector Index, and has amassed about $8.3
billion in its asset base. The fund charges 18 bps in fees per
year from investors (read:
Time for This Top Ranked Energy ETF?
In total, the fund holds about 45 securities in its basket. Of
these firms, XOM and CVX take the first two spots, making up a
combined 31.54% of the assets. From a sector perspective, oil gas
& consumable fuels firms form 80% of the ETF portfolio while
the rest goes to energy equipment & services.
The fund returned over 17% so far this year and added 0.47% in
the past five days. XLE currently has a Zacks ETF Rank of 3 or
'Hold' rating with a 'Low' risk outlook.
Vanguard Energy ETF (
This fund manages a $2.3 billion asset base and provides
exposure to a basket of 164 energy stocks by tracking the MSCI US
Investable Market Energy 25/50 Index. The product charges a low
fee of 14 bps per year from investors.
Again here, XOM and CVX are the top two firms with 23% and
13.4% allocation, respectively. Though the product is skewed
towards the integrated oil & gas sector with 42.5% of assets,
production and exploration, and equipment services provide a nice
mix in the portfolio.
VDE added 16.5% year-to-date and 0.08% in the past five days.
The fund has a Zacks ETF Rank of 3 or 'Hold' rating with a 'Low'
risk outlook (read:
Behind the Rebound in Energy ETFs
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CHEVRON CORP (CVX): Free Stock Analysis
ISHARS-US EGY (IYE): ETF Research Reports
VIPERS-ENERGY (VDE): ETF Research Reports
SPDR-EGY SELS (XLE): ETF Research Reports
EXXON MOBIL CRP (XOM): Free Stock Analysis
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