The Energy Select Sector SPDR ETF (NYSEArca: XLE) is the worst performer among the nine established sector SPDR exchange traded funds this year, but some fund managers see opportunity in beaten up energy shares.
Even amid falling oil prices, XLE is off just a third of a percent over the past month as investors digested what was a batch of predictably dire earnings reports from the energy sector. Heading into the start of third-quarter earnings season, some market observers predicted energy sector earnings would contract as much as 60%, the worst contraction of any S&P 500 sector.
Ongoing struggles for XLE and rival energy ETFs are prompting some market observers to wave the white flag when it comes to forecasting what’s next in the energy patch. Some institutional investors are steering clear of energy stocks, but at least one exchange traded funds strategist is embracing beaten-up energy sector ETFs. [Oil ETF Dividends Appear Safe…Sort Of]
“Thomas Lee, managing partner at Fundstrat Global Advisors, has opted to upgrade energy to overweight while downgrading the consumer discretionary sector, citing rising labor costs and the inverse relationship between energy and consumer-oriented stocks over the past decade and a half,” reports Luke Kawa for Bloomberg.
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.
Should energy sector ETFs see more waning momentum, which is exactly was seen Tuesday, the UltraShort Oil & Gas ProShares (NYSEArca: DUG) and the Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY) could prove to be winning trades. ERY attempts to deliver three times the daily inverse performance of XLE’s underlying index while DUG is a double-leveraged inverse play on the Dow Jones U.S. Oil & Gas Index.
“Lee joins a growing number of strategists, including BGC Financial’s Senior Equity Derivatives Strategist Jared Woodard, in highlighting rising wages as a noteworthy headwind for consumer-oriented stocks,” according to Bloomberg.
Energy Select Sector SPDR ETF
