Traditional, large-cap energy stocks and the exchange traded funds laden with those names are off to a glum start this year.
This is how glum: The S&P 500 energy sector lost 6.3% last month compared to a 6.4% loss for emerging markets, according to S&P Dow Jones Indices Senior Index Analyst Howard Silverblatt. That made energy the worst sector by nearly 40 basis points over consumer discretionary as Exxon (NYSE: XOM) declined 8.9%, Chevron (NYSE: CVX) fell 10.6%, and Occidental Petroleum (NYSE: OXY) fell 7.9%, noted Silverblatt.
Said another way, investors would have been better off last month with the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which performed better than the 9.75% average loss generated by Exxon Mobil and Chevron. [Dismal January for Emerging Markets ETFs]
To be fair, the Energy Select Sector SPDR Fund (NYSEArca: XLE), Fidelity MSCI Energy Index ETF (NYSEArca: FENY) and the Vanguard Energy ETF (NYSEArca: VDE) were all better than EEM last month, but the stumble for the S&P 500’s sixth-largest sector weight is still noticeable. That is particularly true coming off 2013, a year in which the average return of 26% offered by XLE and VDE lagged the S&P 500 by a wide margin. [Energy ETFs Stumble to Start 2014]
The energy sector’s laggard ways sent XLE from being the third-largest of the nine sector SPDRs to fifth-largest late last year.
While slack oil production growth is seen as the culprit for knocking the aforementioned oil names (and others) lower in January, those stocks and the ETFs mentioned here all performed noticeably worse than the U.S. Oil Fund (NYSEArca: USO).
Making the situation all the more vexing is that natural gas is the best performing commodity in the S&P GSCI Commodity Index this year. That is relevant because Exxon Mobil and Chevron, 30% of XLE’s weight, among others, have previously been criticized for being too “gassy” in their output levels. In fact, Exxon Mobil is the largest natural gas producer in the U.S., but slid almost 9% in a month where two of the best ETFs of any type were natural gas funds. [January’s 10 Best ETFs]
There is some hope for beleaguered energy sector bulls. Not only does late February mark the start of the energy sector’s seasonal sweet spot, but the group is now inexpensive. The S&P 500 Energy Sector’s estimated bottom up P/E ratio according to Silverblatt is 12.32, the lowest of the 10 sectors. Not only is energy significantly discounted relative to the S&P 500 (14.75 P/E), but the sector is also cheaper than utilities (15.06) and consumer staples (16.18).
Energy Select Sector SPDR
