Escalating tensions in the Middle East are again serving as the catalyst behind higher oil prices, but even with rising crude prices, the energy sector is still attractively valued.
“If you don’t get that surge in production that many analysts were expecting in Iraq may not happen. Given that North American production is likely to level off what that suggests to us is that oil prices are likely to stay elevated for quite some time. That’s good for energy companies,” BlackRock Chief Investment Strategist Russ Koesterich said in an interview with Yahoo Finance’s Breakout.
The fact that compelling valuations remain among energy stocks and exchange traded funds is important and, arguably, impressive when considering it was the move to value away from momentum that buoyed inflows to the sector earlier this year.
No sector ETF has taken in more new assets this year than the $3.3 billion hauled in by the Energy Select Sector SPDR (NYSEArca: XLE). The iShares U.S. Energy ETF (NYSEArca: IYE) has raked in over $375 million while energy sector ebullience has helped make the Fidelity MSCI Energy Index ETF (NYSEArca: FENY) after launching last October. [Energy ETFs Dominate Sector Flows]
Energy ETFs also remain attractive on valuation after many members of the group have posted 90-day returns that are well into double digits. In fact, all of the top-performing sector and industry ETFs over that time are energy funds. Over that time, nine of the top-20 non-leveraged ETFs are energy funds, a group that topped by the First Trust ISE-Revere Natural Gas Index Fund (NYSEArca: FCG) and the Market Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK) and also includes XLE and the Guggenheim S&P Equal Weight Energy ETF (NYSEArca: RYE). [Equal-Weight Energy ETF Pays Off]
Although oil futures are trading slightly lower Monday, Sunni militants took control of the only legal border crossing between Iraq and Jordan and “at least 71 prisoners and five police officers were killed Monday when militants attacked an Iraqi police convoy transferring inmates from one prison to another,” according to CNN.
The United States Oil Fund (NYSEArca: USO) and the United States Brent Oil Fund (NYSEArca: BNO) each currently reside about 1% below their 52-week highs.
Energy Select Sector SPDR
ETF Trends editorial team contributed to this post.