A Practical ETF for Rebounding Oil Prices

  • USO up more than 20% over past month
  • The once downtrodden oil product is boosting fortunes of equity-based energy sector ETFs
  • Exposure to more conservative, mega-cap integrated oil names can be rewarding for investors

The United States Oil Fund (NYSEArca: USO) is up more than 20% over the past month, a stunning move for the once downtrodden oil exchange traded product and one that is boosting the fortunes of equity-based energy sector exchange traded funds.

That includes the Vanguard Energy ETF (NYSEArca: VDE), which is higher by 12% over the past month. VDE is a favorite among sector investors due in part to its paltry fee. Late last year, Vanguard trimmed the annual fees on some of its sector ETFs to 0.1% per year. That means VDE charges just $10 per $10,000 invested.

By some metrics, VDE and rival energy ETFs are home to some compelling values. 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.

VDE holds 144 stocks, but as a cap-weighted fund, Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), the two largest U.S. oil companies, dominate the Vanguard offering.

“The fund’s top holdings are involved in a variety of oil-related businesses including the construction or provision of oil rigs, drilling equipment, energy-related equipment and services, and the exploration, production, marketing, refining and transportation of oil and gas products. Only 42.4% of the fund’s total holdings are focused on the integrated oil and gas sector, which involves companies whose business includes natural gas and coal energy products,” according to Investopedia.