There are no more airline ETFs, which is a shame because with
oil prices soaring due to the specter of military conflict with
Syria, traders would probably like to make some easy money.
Easy money includes shorting airlines when oil prices. Shares
of Delta (NYSE:
), the largest U.S. carrier, are down 10.4 percent in the past
Over that same four-week span, the U.S. Oil Fund (NYSE:
) is higher by about 5.5 percent. USO tracks near-month West
Texas Intermediate futures contracts. Due to fund's need to roll
those contracts, it is expensive (by the standards of ETFs) and
can deliver returns that are not always on par with those offered
by oil in the futures market.
Transports ETF Defies Surging Oil Prices
USO is not a perfect ETF, but it is current flirtation with
$40, which coincides with WTI for October delivery ominously
flirting with $110 barrel, is worth monitoring. Past trips to
around and above for USO have not been good news for popular
energy ETFs such as the Energy Select Sector SPDR (NYSE:
) and the Vanguard Energy ETF (NYSE:
Investors do not have to go back too far for confirmation. On
February 20, 2012, USO closed around $42. By June 18, it was
barely above $30. Over that period, XLE, the largest energy ETF
by assets, and VDE, the energy ETF with the lowest expense ratio,
plunged an average of 13.3 percent.
far from the only example
of USO putting stress on energy stocks. From April 18, 2011
through September 26, 2011, USO plunged 26.6 percent. XLE and VDE
each lost 19.5 percent over the same time.
Interestingly, XLE, VDE and comparable energy ETFs practically
advertise the fact that they will fall mightily when oil prices
do the same because the top holdings in these ETFs are not great
performers when crude futures rise too much too fast. Sure, Exxon
) gained over two percent Wednesday, but heading into the start
of trading for that day, shares of the largest U.S. oil company
were down 7.7 percent in the past month.
Rival Chevron (NYSE:
), the second-largest U.S. oil company, was better by comparison
with a one-month loss prior to Wednesday of 5.8 percent. Those
stocks combine for almost 30.8 percent of XLE's weight and 36.4
percent of VDE's weight. In both cases, those weights are more
than enough to determine the fates of these ETFs.
One more example: From April 12, 2010 through May 17, 2010
slid 17.2 percent. Over the same time, XLE and VDE lost an
average of 7.3 percent.
For more on ETFs, click
Disclosure: Author does not own any of the securities
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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