With low oil prices weighing on the energy sector, investors may turn to a relatively new ex-sector exchange traded fund to track U.S. equities while excluding exposure to weaker energy companies.
Many are utilizing S&P 500 ETFs, such as the SPDR S&P 500 ETF (NYSEarca: SPY), which includes a 7.0% tilt toward energy companies, as a core position for U.S. equities exposure in a diversified investment portfolio.
Looking ahead, the S&P 500 is expected to experience an estimated earnings decline of -3.6% and an estimated revenue drop of 3.1% over the fourth quarter, John Butters, Senior Earnings Analyst at FactSet Insight, said in a research note.
Additionally, for the current year 2015, the estimated earnings decline is -0.3% and estimated revenue drop is -3.4%.
Butters, though, pointed out that the energy sector is projected to be the largest contributor to the estimated earnings and revenue decline for the fourth quarter and for all of 2015. For Q4 2015, the estimated drop in energy sector is -64.3% while estimated revenue decline is -34.2%. For the current year 2015, the estimated earnings decline is -58.5% and estimated revenue decline is -34.4%.
Weighing on the energy sector, crude oil prices have plunged to about $40 per barrel since trading above $100 per barrel last year. The ongoing global supply glut has kept oil prices from breaking higher. [Key Levels to Watch With Oil, Crude ETFs]
For the year ended October 31, SPY has gained 5.2% while the Energy Select Sector SPDR ETF (NYSEArca: XLE), which tracks S&P 500 energy sector companies, declined 20.1%.
If the energy sector was excluded from the growth calculations for Q4 2015, Butters calculates earnings growth rate for the quarter would be 1.6% and estimated revenue growth would be 1.2%. For the current year 2015 calculations sans energy names, S&P 500 estimated earnings growth for the year would be 6.9% and estimated revenue growth would be 1.9%.
Investors may have a chance to easily track the S&P 500 without energy sector exposure. ProShares recently came out with a suite of ex-sector S&P 500 ETFs that promise to track the S&P 500 without a specific sector. Specifically, the S&P 500 Ex-Energy ETF (NYSEArca: SPXE) will try to reflect the performance of the S&P 500 Ex-Energy Index, which provides exposure to S&P 500 companies with the exception of those included in the Energy Sector. [S&P Without the Pulp: New S&P 500 ‘Ex-Sector’ ETFs Introduced]
While SPXE holds a 0% exposure to the energy sector, the ProShares ETF includes slightly higher tilts toward the other sectors, compared to the broader S&P 500 index. SPXE jas a 21.9% tilt toward information technology, 17.8% in financials, 15.8% in health care, 14.1% in consumer discretionary, 10.8% in industrials, 10.7% in consumer staples, 3.4% in utilities, 3.0% in materials and 2.6% in telecom services.
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Max Chen contributed to this article.