Even with XOM faltering this week after an earnings miss and falling back to the Number two weighted holding in the SPX (S&P 500 Index) and related ETFs such as SPY (SPDR S&P 500, Expense Ratio 0.09%) behind the familiar AAPL, the SPX itself has had enough momentum to trade as high as 1707.85.
For in the past five days, XOM and AAPL’s stock performances have basically been mirror images of each other, with XOM down 2.87% and AAPL adding 3.87%, and thanks to the nature of a market capitalization weighted index like the SPX, the mathematics of where the “market” is currently can unfold. [Ahead of Big Earnings, Energy ETFs Show Vulnerability]
XOM’s recent sell-off may not have paralyzed broad market based ETFs such as those that track the S&P 500, but specialized Energy Equity based ETFs tell a different story. The largest ETFs in this space in terms of assets are XLE (SPDR Energy Select Sector, Expense Ratio 0.18%), VDE (Vanguard Energy, Expense Ratio 0.14%), OIH (Market Vectors Oil Services, Expense Ratio 0.35%), IYE (iShares Energy Sector, Expense Ratio 0.48%), and IXC (iShares S&P Global Energy Sector, Expense Ratio 0.48), with XLE, VDE, IYE, and IXC all having hefty exposure to XOM, ranging from about 15-24% of the underlying indexes in these products.
Even though the lion’s share of the live assets invested in the space are lumped mostly across the aforementioned ETFs, other index ETFs that follow methodologies other than “market capitalization” weighted should at least receive some attention and discussion here given the XOM miss and subsequent sell-off and how it has affected funds with heavy XOM weightings.
Funds that come to mind include several ETFs that have lower asset levels and likely much less familiarity among fund managers, like the fundamentally/factor weighted FXN (First Trust Energy AlphaDEX, Expense Ratio 0.70%), PXI (PowerShares Dynamic Energy Sector, Expense Ratio 0.65%), and PXE (PowerShares Dynamic Energy Exploration & Production, Expense Ratio 0.60%) as well as the equal weighted RYE (Guggenheim S&P 500 Equal Weight Energy, Expense Ratio 0.50%) as means to hedge out “over-exposure” to single names like XOM for example. PXE for one traded a ton of volume yesterday compared to a normal day (>500,000 shares versus ADV of 53,000).