Oil stocks and related exchange traded funds have been among the best performing area over the past few months, and the sector may still see continued forward momentum.
The Energy Select Sector SPDR (NYSEArca: XLE) has gained 11.2% over the past three months and is up 13.2% year-to-date. In comparison, the S&P 500 Index is up 8.6% over the past three months and rose 8.1% this year.
Matarin Capital Management’s Nili Gilbert argues that energy picks may maintain their momentum as a way to hedge inflationary pressures, reports Cassandra Jaramillo for CNBC.
“We think energy is a good investment, not only because of our positive outlook but also because of the rising prices generally,” Gilbert said.
Gilbert, though, tries to steer away from global regions as a way to avoid geopolitical risk.
“We like companies operating in stable regions like the U.S, Canada and Norway,” the analyst said.
Additionally, investors may want to focus on oil players instead of natural gas producers in the energy sector.
“Natural gas markets tend to be so local that you almost need to be a political forecaster to find hedges there, whereas oil prices tend to rise around the world together,” Gilbert added.
For example, she points to oil & gas services and exploration & production companies like Marathon Oil (NYSE: MRO) and Basic Energy Services (NYSE: BAS).
The PowerShares S&P SmallCap Energy Portfolio (NasdaqGS: PSCE) has the largest position in BAS at 3.0% of its portfolio. The iShares U.S. Oil & Gas Exploration & Production ETF (NYSEArca: IEO) has the largest weight in MRO at 3.6% of the fund’s portfolio. Both PSCE and IEO track U.S. companies, but the two funds focus on different asset categories and sub-sectors. [These ETFs are Loaded With the S&P 500’s Best Stocks]
PSCE tracks small-cap energy companies taken from the S&P SmallCap 600 index that produce, distribute or service energy related products. The ETF’s capitalization weights include small-caps 62.4% and micro-caps 37.7%. PSCE is up 12.1% year-to-date.
IEO follows U.S. companies that engage in the exploration, production and distribution of oil and gas. The fund’s market capitalization weights include mega-cap 14.0%, large-cap 58.1%, mid-cap 22.3% and small-cap 4.7%. IEO is up 16.3% year-to-date.
For more information on the energy sector, visit our energy category.