After starting the year in fine form, equity-based energy sector exchange traded funds have fallen on hard times.
The Energy Select Sector SPDR (NYSEArca: XLE), the largest energy ETF, was a star among sector ETFs, surging more than 25% after bottoming in February through the end of the second quarter. XLE, a benchmark among energy ETFs, not only delivered stout performance through the first and second quarters, it was also one of the top asset-gathering ETFs over that period and by far the inflows leader among sector ETFs. [Energy ETFs Keep Hauling in Cash]
For awhile, XLE was the top performer among the nine sector SPDR ETFs. So stunning has the retrenchment been in energy stocks and ETFs over the past two months that XLE has now fallen to the seventh spot among the nine SPDRs on a year-to-date basis with only the Industrial Select Sector SPDR (NYSEArca: XLI) and the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) being worse.
Over the past three months, XLE is down 8%, but in a sign of just how bad things have been in the energy sector, 11 equity-based energy ETFs have lagged XLE over that period.
Predictably, the strong dollar has been a problem for energy futures and equities. The PowerShares DB US Dollar Index Bullish Fund (NYSEArca: UUP) has surged 6.8% over the past three months, leaving a trail of woe for both equity-based and futures-based energy funds, such as the United States Oil Fund (NYSEArca: USO), in its wake. [Dollar Pain for Commodities ETFs]
So bad has XLE been over the aforementioned 90-day period that it is one of just three of the nine sector SPDR ETFs and it is the worst one by a more than two-to-one margin over the Utilities Select Sector SPDR (NYSEArca: XLU).
All of this sounds bad for XLE and friends, but after a slew of third-quarter drubbings, some technical analysts see the potential for an energy sector rebound.
“XLE is the worst performing S&P 500 sector over the past 30 & 90 days. This decline has taken it down to support of this rising channel, that has been in place since late 2012,” notes Chris Kimble of Kimble Charting Solutions.
Of course, it would help the case of energy ETFs if the dollar weakens. Because commodities, including oil, are denominated in U.S. dollars, ETFs like XLE make for predictable beneficiaries of weak dollar environments. Investors have been reminded of that fact again this year. [Sector ETFs for Dollar Reversion]
XLE Chart
Chart Courtesy: Kimble Charting Solutions
ETF Trends editorial team contributed to this post.