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3 Energy ETFs Down at least 20% in the Past One Month

The slump in oil prices was one of the main reasons behind the dismal performance of the broader markets in the past one month. While both the Dow and S&P 500 lost around 3% during this period, the broader energy index - Energy Select Sector SPDR ETF ( XLE ) - declined more than 12% in the last one-month period.

Concerns regarding weak global demand, absence of production cuts from OPEC and North American shale suppliers, and stronger dollar continued to weigh on oil prices. The price of Brent crude oil lost nearly 1.5% yesterday to $36.35 per barrel, hitting its lowest level since Jul 2004. Meanwhile, the WTI crude price is trading below the key psychological level of $35-a-barrel after hitting a new 7-year low of $34.29 recently. While the price of WTI crude declined nearly 11.5%, Brent crude lost around 19% this month, its biggest drop since Oct 2008.

Concerns Dragging Crude Down

The continuous rise in oil supply despite weak demand is one of the main causes of crude slide over the past few months. Earlier this month, OPEC - the international cartel of oil producers - decided to raise the ceiling of daily production from the prior level of 30 million barrels to 31.5 million barrels. Moreover, inventories near the highest level during this time of year in at least 80 years also remained one of the major concerns. Meanwhile, the drive of the major oil suppliers including OPEC, the U.S. and Russia to gain a larger market share is boosting the supply of the commodity (read: Q4 Outlook for Oil & Gas ETFs ).

Meanwhile, declining global demand led by sluggish global growth also had a negative impact on oil prices over the past one year. Persistent weakness in the world's biggest consumer of energy, China, and an unfavorable economic environment prevailing in other major economies including Europe remained one of the major worries in the energy market. Also, a milder winter in the U.S. is likely to depress demand for energy and energy-related products. Moreover, a stronger dollar - edging even higher after the Fed policy makers unanimously voted to raise interest rates - has made the greenback-priced crude more expensive for investors holding foreign currency.

What Ahead?

The International Energy Agency (IEA) projected that the commodity is likely to maintain its low trajectory through 2016 as worldwide demand will soften next year to 1.2 million barrels a day after climbing to a five-year high of 1.8 million barrels this year. Additionally, with Iran looking to boost its production once the Tehran sanctions are lifted, it is expected to aggravate supply concerns further (read: No Respite for Oil and Energy ETFs in 2016? ).

3 Bleeding Energy ETFs

In this scenario, we have highlighted 3 energy ETFs that lost at least 20% in the past one-month period due to the crude slump. Moreover, these ETFs have either a Zacks ETF Rank #4 (Sell) or a Zacks ETF Rank #5 (Strong Sell) with a high risk outlook (see all energy ETFs here ).

Market Vectors Unconventional Oil & Gas ETF ( FRAK )

This fund provides exposure across 50 securities by tracking the Market Vectors Unconventional Oil & Gas Index. The product is largely concentrated in the top 10 firms that collectively make up for 57.2% share of the basket. The product puts heavy focus on energy at 99%, while utilities account for the remainder. The fund has amassed $38 million in its asset base while it sees average volume of more than 39,000 shares a day. The ETF has an expense ratio of 0.54% and lost 23.8% in the last one-month period.

SPDR S&P Oil & Gas Exploration & Production ETF ( XOP )

This ETF tracks the S&P Oil & Gas Exploration & Production Select Industry Index, having 63 holdings in its portfolio. It is well diversified as well with all the companies occupying less than 2.2% of total assets. The product is highly focused on Oil & Gas exploration & production with 72.5% share while Oil & Gas refining & marketing accounts for nearly 19% of the assets. XOP has garnered nearly $1.3 billion in assets and trades in a solid average volume of 12 million shares a day. It charges 35 bps in investor fees and lost 21.9% in the last one-month period (read: Is Budget Deal a Boon/Bane? Look at These Sector ETFs ).

PowerShares Dynamic Energy Exploration & Production ETF ( PXE )

This fund provides exposure to 30 firms by tracking the Dynamic Energy Exploration & Production Intellidex Index. The fund has garnered about $90.6 million in its asset base while it sees a moderate volume of around 33,000 shares a day. About 49% of its assets is allocated to Oil refining & marketing while energy exploration & production accounts for 40% of its assets. The ETF charges a fee of 64 bps annually and lost 20.6% in the last one-month period.

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SPDR-EGY SELS (XLE): ETF Research Reports

MKT VEC-UNC O&G (FRAK): ETF Research Reports

SPDR-SP O&G EXP (XOP): ETF Research Reports

PWRSH-DYN ENRG (PXE): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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