In addition to the usual suspects of the U.S. energy patch, such as Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), FILL’s top 10 holdings include European oil behemoths Royal Dutch Shell (NYSE: RDS-A), BP (NYSE: BP) and Total (NYSE: TOT).
“Since inception stocks in FILL have gone from trading at a relative price-to-book value multiple of 0.91x versus stocks in XLE to a relative multiple of just 0.74x. In other words, the discount on stocks in FILL versus their counterparts in XLE has increased from 9% to 26% in the past three years,” said AltaVista. “We believe such a large valuation discount is unwarranted. With an average ROE of 11.5%, stocks in FLL trade at a forward P/BV multiple of just 1.2x, resulting in an ALTAR Score™—our measure of an ETF’s overall investment merit—of 9.2% after fund expenses. In contrast, stocks in XLE enjoy a somewhat higher average ROE of 12.7% but also have a considerably higher P/BV multiple of 1.6x, which after fees results in a lower ALTAR Score™ of 7.8%.”
With return on equity levels depressed, a rebound in oil prices could help FILL outperform U.S.-focused counterparts. That scenario is already materializing as FILL is up 8.3% over the past month, about 70 basis points better than IYE over the same period. [An Energy ETF Looks for Momentum]
Charts Courtesy: AltaVista Research