- Energy Equity ETFs act moderately better in early 2016 than last year
- However, the energy sector is still unattractive in the eyes of some market observers
- The energy patch remains downright pricey compared to the broader market
The Energy Select Sector SPDR (NYSEArca: XLE) and rival equity-based energy exchange traded funds are acting moderately better in the early stages of 2016 than they did last year, but that does not mean the energy sector is out of the woods.
Far from it. Amid contracting earnings, a spate of negative dividend actions and massive capital spending reductions, the energy sector is still unattractive in the eyes of some market observers.
Concerns over Chinese oil demand also pressured prices. China revealed that its service activity expanded at a slower-than-expected pace, which has fueled pessimism over a potential slowdown in the second largest oil-consuming country in the world. [China ETFs Suffer New Year Hangover ]
“The collapse of the oil market and the plunge in stock and bond prices across the energy sector might be a great opportunity for value investors, but (S&P Capital IQ analyst Stewart) Glickman is still cautious,” reports Andrew Osterland for CNBC.
Bright spots have been few and far between for equity-based energy exchange traded funds this year and for all the struggles the encountered by the sector, it still is not inexpensive relative to the S&P 500. In fact, the energy patch is downright pricey compared to the broader market. This after a spate of spending cuts that have not been met with widespread enthusiasm among investors. [Oil ETF Dividends Appear Safe…Sort Of]
In a recent Reuters poll, seven of 25 strategists cited energy as their contrarian pick for 2016 or expected a surprise upside in oil and energy next year, pointing to integrated oil companies as best situated to capitalize on the turn.
Supply is still a major concern for energy investors.
“In the last five years, it has increased from just over 5 million barrels per day to nearly 9.5 million barrels. With Organization of Petroleum Exporting Country members, such as Saudi Arabia, and big non-OPEC producers, like Russia, refusing to cede market share to U.S. producers, the supply imbalance got worse through 2015,” reports CNBC.
Energy Select Sector SPDR
