Buttressed by the sector’s status as the second-best performer in the S&P 500 this year and geopolitical factors, energy exchange traded funds have been in big demand in 2014.
As of June 26, ETFs “devoted to energy stocks have attracted $6.68 billion in fresh money this year, the most among 12 categories in the $289 billion market for sector ETFs,” reports Jim Polson for Bloomberg.
One of the leaders has been the Energy Select Sector SPDR (NYSEArca: XLE). The largest equity-based energy ETF by assets, XLE has attracted nearly $3.2 billion in new assets this year, more than any other sector ETF. In just the second quarter, XLE has pulled in almost $2.3 billion in new assets. [Energy ETFs Dominate Sector Flows]
Said another way, the second-quarter inflows for the Utilities Select Sector SPDR (NYSEArca: XLU) and the Industrial Select Sector SPDR (NYSEArca: XLI) would need to be combined to reach a number greater than the new capital allocated to XLE.
Energy ETFs have rewarded investors for their devotion to the sector. Of the top-25 non-leveraged ETFs over the past three months, 13 are either equity-based energy funds or ETFs focusing on master limited partnerships. That group of 13 does not include several Russia ETFs, which have recently been boosted by higher oil prices. [Caution Needed on Russia ETFs]
Investors’ affinity of energy ETFs has not been limited to cap-weighted funds such as XLE that focus primarily on the largest integrated oil companies like Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX).
The equal-weight and often volatile SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) has pulled in over $131 million this quarter while the rival iShares U.S. Oil & Gas Exploration & Production ETF (NYSEArca: IEO) has brought in almost $75 million in new assets.
Oil services stocks and ETFs have not been left behind by the energy rally. The Market Vectors Oil Service ETF (NYSEArca: OIH) is one of the second quarter top industry ETFs with a gain of over 14%. OIH’s rivals, the iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) and the SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES), have pulled in a combined $61 million this quarter. [A Different Kind of Oil Services ETF]
Even with the sector’s rally, energy is not expensive compared to the broader market. The average 12-month trailing price-to-earnings ratio for the S&P Energy Index is 16.77 compared to 17.93 for the S&P 500, according to Bloomberg.
The energy sector’s status as a viable dividend destination has also increased its allure. Exxon and Chevron, the two largest U.S. oil companies, yield 2.7% and 3.2%, respectively. However, investors can do even better with international energy stocks. The SPDR S&P International Energy Sector ETF (NYSEArca: IPW) yields 3%, or 130 basis points above XLE. [Don’t Forget International Energy ETFs]
Energy Select Sector SPDR
