Arguably, no asset class or sector fits the definition of contrarian idea the way oil and equity-based energy exchange traded funds do. Underscoring that point, 22 ETFs hit all-time lows yesterday, five of which were oil funds.
Oil’s wicked slump, one that has the Energy Select Sector SPDR (NYSEArca: XLE) positioned to be the worst of the nine sector SPDRs for a second consecutive year, is not proving to be a deterrent for investors. Actually, the opposite is true. As we have noted several times in recent months, investors are piling into energy funds, including XLE.
“With a year-to-date return of negative 23.4% through August 6, one might have thought investors would flee the equity energy sector’s largest ($11.4 billion) exchange-traded fund, but instead it’s become a contrarian’s playground. Consider this: the 35 months before XLE’s peak price in June 2014 saw cumulative net inflows of just $69 million – barely anything for a fund of this size. But since June 2014, when the price of XLE hit its all-time high of just over $101/share, net inflows have totaled nearly $3.1 billion. For the recent flows week ended August 5, another $74 million was added (red column in chart), despite XLE touching its lowest price in three years,” according to Lipper data.
Said another way, XLE has added $1.36 billion in new assets this year and it is the worst-performing sector SPDR, but that total is more than half the inflows to Health Care Select SPDR (NYSEArca: XLV), the best-performing SPDR. It would be reasonable to expect the gap between best and worst would be greater or that XLE would be losing money as it falls. Obviously, that’s not the case.