Some institutional investors are steering clear of energy stocks, but at least one exchange traded funds strategist is embracing beaten-up energy sector ETFs.
Nebraska-based CLS Investments, a major ETF strategist, has been slowly adding to positions in ETFs such as the Energy Select Sector SPDR (NYSEArca: XLE) and the Fidelity MSCI Energy Index ETF (NYSEArca: FENY) even as oil prices and energy equities have been falling, according to Investor’s Business Daily.
On Monday, CNBC reported that among the 20 most widely held stocks by institutional investors in the second quarter, just two were energy stocks, Royal Dutch Shell (NYSE: RDS-A) and Chevron (NYSE: CVX). That is down from three in the first quarter when Exxon Mobil (NYSE: XOM) was also on the list.
“The percentage of institutional funds that owned Chevron dropped 40 basis points during the quarter, down to 12.53 percent from 12.93 percent. But the recent shift away from the energy stocks begs the question of whether they were oversold,” notes CNBC. [Pros Ditch Energy Stocks]
CLS has maintained its current overweight in the sector, without hitting the gas on the buy front, according to IBD.
Analysts will continue to downwardly revise earnings for an additional two months after the sector bottomed, so we might already be in a bottom while market observers project further pain for the companies.
Valuations are also sitting at relatively attractive levels as well. Looking at the energy sector’s price-to-book ratio since 1990, the sector’s valuations are hovering near lows last seen during the financial downturn.
The larger integrated oil companies are more flush and have a larger war chest to draw upon when times get tough. While big oil has cut stock repurchase plans to save cash, many bigger players have not gone so far as to cut back on dividends. For instance, Exxon and Chevron have historically exhibited a long standing of steadily increasing dividends and remain so-called dividend aristocrats. [Oil ETF Dividends Appear Safe…Sort Of]
Profit expectations have fallen dramatically which in turn has pushed the sector’s P/E ratio much higher even as stock prices have declined, though P/Es have come off their highs and estimates appear to have stabilized,” according to AltaVista.
FENY ties with the Vanguard Energy ETF (NYSE: VDE) as the least expensive energy sector fund with an annual fee of 0.12%.
Fidelity MSCI Energy Index ETF
