The Energy Select Sector SPDR ETF (NYSEArca: XLE) is the worst performer among the nine established sector SPDR exchange traded funds this year with a loss of nearly 15%. With limited time left in 2015, energy investors are probably wondering what 2016 has in store for the downtrodden 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. However, that could portend opportunity with XLE.
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. [Oil ETF Dividends Appear Safe…Sort Of]
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]
“But the relationship between the crude market and global equities has always confused investors and traders. It is widely believed that lower crude prices are good for equities in the long term, but the short-term effects of the lower prices are complicated,” according to CNBC.
On the back of some recent strength in the sector, strength in the energy sector, integrated oil companies have adjusted to the low oil environment by reducing costs, divesting businesses and squeezing suppliers for better deals.