Energy stocks started 2014 on a sour noted, but that trend is changing for the better as the Energy Select Sector SPDR (NYSEArca: XLE) is up 0.4% in the past month.
XLE, the largest energy sector ETF by assets, and rival funds have had to endure lethargic performances by Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX). The Dow components, also the two largest U.S. oil companies, often dominate the lineups of cap-weighted energy ETFs , exposing the fund’s investors to some risk when those stocks lag the broader market. [Exxon Weighing on Some Energy ETFs]
There is potentially good news for XLE and friends and it comes as XLE is sitting in the sixth spot among the nine sector SPDR ETFs in terms of year-to-date performance.
“John Person, president of NationalFutures.com and co-author of the Commodity Traders Almanac, points out that starting in February and running through mid-April,” oil services and exploration and production names have tendency to outperform the market,” writes Michael Kahn for Barron’s.
Indeed, the energy sector is entering its seasonal sweet spot. Over the past 20 years, the sector has posted gains 60% of the time February with that number jumping to 70% in March and 75% in April, according to Equity Clock. May is not too shabby either, with a gain frequency of 65% for the energy sector.
The SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) is already showing signs of out-performance with a 2% gain in the past month. The $959 million XOP is an equal weight ETF and, in a departure from cap-weighted equivalents, Exxon and Chevron are not among XOP’s top-10 holdings. In fact, integrated oil stocks represent just 5% of the ETF’s weight. [Energy ETF Looks for New Highs]
“Since peaking in October of last year, the ETF skidded 13% into its early February low. However, it found support at its 200-day moving average and more importantly at the long-term rising trendline drawn from the October 2011 bottom,” according to Barron’s.
Another seasonal idea is the Market Vectors Oil Service ETF (NYSEArca: OIH), which was also highlighted by Barron’s. With $1.3 billion in assets, OIH is the largest oil services ETF and the fund has added almost 1% in the past month.
Although OIH is a pure play oil services ETF, it does share something in common with XLE: Heavy allocations to two stocks. In the case of OIH, Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL) combine for over 32% of the fund’s weight. The bad news is that Schlumberger is in the red over the past month. The good news is Halliburton is higher by 11%.
Market Vectors Oil Services ETF