West Texas Intermediate futures surged nearly 6% Wednesday, extending a bullish run for the benchmark U.S. oil contract that has encouraged some traders to ratchet up long oil positons.
“Money managers boosted their net-long position on West Texas Intermediate by 16,855 contracts to 132,857 futures and options in the week ending Sept. 8, according to data from the Commodity Futures Trading Commission. Traders also boosted their bullish stance on Brent crude by the most since April,” reports Dan Murtaugh for Bloomberg.
Oil’s stout performance yesterday translated to an almost 3% gain for the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy ETF by assets.
Investors need to identify the sector’s strongest names, which are likely also its biggest members. 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]
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.
Some institutional investors are steering clear of energy stocks, but at least one exchange traded funds strategist is embracing beaten-up energy sector ETFs. However, that could portend opportunity with XLE.