Since the start of 2015, the Energy Select Sector SPDR (NYSEArca: XLE) has seen inflows of over $1.2 billion, good for the highest total among all sector ETFs. That despite the energy sector trading at a noticeable premium to the broader market.
“Profit expectations have fallen dramatically, which in turn has pushed the sector’s P/E ratio higher even as stock prices have declined. Obviously momentum isn’t in the Energy sector’s favor, but stocks appear attractive in terms of valuation if–and this is a big if–the depressed profitability (Return on Equity) forecast for this year and next is temporary, rather than a ‘new normal’ reflecting abundant new supplies from shale,” said AltaVista in a new research note. [Energy ETF Ebullience]
Traders have also embraced leveraged ETFs as an avenue for participating in an energy sector rebound. As of Feb. 3, year-to-date inflows to the Direxion Daily Energy Bull 3X Shares (NYSEArca: ERX) reached nearly $172 million, helping boost the ETF’s shares outstanding count by 66%. ERX attempts to deliver three times the daily performance of the S&P Energy Select Sector Index, XLE’s underlying index.
Energy Select Sector SPDR
