The energy sector has been an attractive play from a so-called mean-reservation perspective – the idea that prices and returns eventually move back towards the mean or average. Now that the energy sector has experienced a large pullback, traders are anticipating the sector will at the very least revert back to its historical average.
Due to the downward earnings trajectory within the energy sector, falling oil and equity prices have not led to valuation discounts. The opposite is true as energy is currently one of the most expensive sectors relative to the S&P 500. [Opportunity With Energy ETFs]
Some investors still see opportunity for a material rebound by oil stocks as highlighted by year-to-date inflows of nearly $383 million to VDE.
Vanguard Energy ETF