After being last year’s worst-performing sector, the energy patch has not offered investors much in the way of relief this year as highlighted by a 3% year-to-date decline by the Energy Select Sector SPDR (NYSEArca: XLE).
Some equity-based energy exchange traded funds have fared worse, namely those with heavy small-cap exposure or large weights to exploration and production names. For example, the PowerShares S&P SmallCap Energy Portfolio (NasdaqGM: PSCE)
After being last year’s worst-performing sector, the energy patch has not offered investors much in the way of relief this year as highlighted by a 3% year-to-date decline by the Energy Select Sector SPDR (NYSEArca: XLE).
Some equity-based energy exchange traded funds have fared worse, namely those with heavy small-cap exposure or large weights to exploration and production names. For example, the PowerShares S&P SmallCap Energy Portfolio (NasdaqGM: PSCE) is off 6.1% this year, but even with that lethargic performance, PSCE has the makings of an ideal with which to play a potential rebound in energy stocks.
“Consider: Standard & Poor’s SmallCap 600 Energy index fell 51.1% from June 2014 to March 2015, when West Texas Intermediate, the U.S. benchmark for oil prices, bottomed at $43 per barrel. But since then, although crude has rebounded to $61.30 per barrel, the SmallCap Energy index has gained just 4.8%,” reports Kiplinger.
The S&P SmallCap 600 Capped Energy Index is PSCE’s underlying index and several of the index’s marquee names could be laggards-turned-leaders if the energy sector rallies. Take the example of Carrizo Oil & Gas (NasdaqGS: CRZO).
“That signals that Carrizo, whose debt level is just slightly above the ideal ratio, won’t be sunk by debt if oil prices remain low. Investors believe it. The stock has rocketed 67% since hitting its 52-week low of $32 in December,” according to Kiplinger.
Carrizo is PSCE’s largest holding, commanding 10% of the ETF’s weight as of June 12. [Energy ETFs Could Gush Higher]
Analysts are also bullish on Synergy Resources (NasdaqGS: SYRG) “thanks to its minimal debt. In fact, Synergy’s net debt-to-EBITDA ratio was negative as of the quarter that ended in February,” according to Kiplinger.
Synergy’s favorable debt ratios are vital at a time when markets are pensive regarding the rise smaller energy companies as a percentage of the U.S. high-yield bond market. The stock is 4.6% of PSCE’s weight. [Energy Rally Lits Junk Bond ETFs]
The $49.1 million PSCE is home to 35 stocks with 54.6% of that weight going to energy equipment providers and the remainder allocated to consumable fuels producers. PSCE’s annual expense ratio is 0.29%.
PowerShares S&P SmallCap Energy Portfolio
