- Oil equipment and services sector, along with related ETFs, lead rally after bad performance during energy rout
- Some hedge-fund managers are edging back into the energy sector, betting that prices have dropped too far
- ETF investors have also been diving into energy-related assets
Oil equipment and services sector, along with related exchange traded funds, were among the worst performers during the energy rout, but the industry is leading the rally as more hedge funds bet that the sector is past its worst.
On Thursday, the Market Vectors Oil Service ETF (NYSEArca: OIH) rose 3.6%, iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) added 3.8%, SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) jumped 5.8% and PowerShares Dyanmic Oil and Gas Service ETF (NYSEArca: PXJ) increased 4.7%. Over the past month, OIH gained 11.9%, IEZ advanced 11.3%, XES was up 14.1% and PXJ was 13.4% higher.
Meanwhile, the broader Energy Select Sector SPDR (NYSEArca: XLE), which includes a 18.3% tilt toward the energy equipment & services sub-sector, rose 1.0% Thursday and returned 7.5% over the past month.
Some hedge-fund managers are edging back into the energy sector, betting that prices have dropped too far, the Wall Street Journal reports.
“We turned bullish on energy two weeks ago,” Gennaro Pucci, founder of hedge fund PVE Capital LLP, told the WSJ, shifting from his previous bearish position.
Pucci has been acquiring greater energy-sector stakes due to “compelling valuations” and oil prices that he predicts will stabilize between $30 and $40 per barrel.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, dipped 0.4% Thursday, with WTI futures trading at $34.6 barrel. The United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, was up 0.1%, with Brent crude oil futures up to $37.0 per barrel.
Pierre Andurand, founder of hedge fund Andurand Capital Management LLP, said he is “cautiously construction on oil prices at the moment,” anticipating oil to end higher toward the end of the year as inventory levels stabilize.
Over the past week, hedge funders and other money managers’ bullish bets on Brent crude increased 12.4% to their highest level since record first started in 2011, according to the Commitment of Traders report from Intercontinental Exchange. J.P. Morgan Chase also found that the size of hedge fund bets on oil stocks jumped 77% over the week ended February 18, the largest gain in any sector.
ETF investors have also been diving into energy-related assets. Over the past month, XLE has attracted $346.4 million in net inflows, USO attracted $388.4 million and BNO added $6.6 million, according to ETF.com.
Looking ahead, some point to positive seasonal trends that should help support higher oil prices.
“The cheapest point is now. The demand story is not one of a global recession,” Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, told the WSJ, arguing that high seasonal demand should start in the spring as Americans take to the roads.
SPDR Oil & Gas Equipment & Services ETF
Max Chen contributed to this article.