The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, and rival energy ETFs are delivering for investors as the energy sector is the second-best sector behind utilities.
Still, making the sector’s rebound this year all the more impressive is that it comes against the backdrop of still low oil prices, little help in the way of significant production cuts and massive spending reductions by global oil majors.
Related: Why Investors are Bearish on Oil ETFs
The third quarter is historically unkind to the energy sector, but some industry observers believe the recent pullback in crude prices is not a cause for alarm and that there is still upside available with some of the big-name integrated oil companies held by ETFs like XLE.
“Doug Terreson and his firm Evercore are still positive on integrated oil stocks like Chevron, Exxon Mobil and Royal Dutch Shell, which have run up significantly this year. Royal Dutch Shell is up more than 37 percent in 2016, Exxon Mobil has risen nearly 21 percent and Chevron has climbed 17 percent,” reports CNBC.
[related_stories]Investors should be aware that XLE and its aforementioned rivals allocated hefty portions of their lineups to the largest oil companies, including Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) along with Schlumberger (NYSE: SLB), the largest oilfield services provider. In some cases Exxon Mobil and Chevron, the two largest U.S. oil companies, combine for up to a third of these ETFs’ weights.
Integrated oil stocks have refining exposure, a segment that benefits when oil prices are low due to improved margins. That can help steady diversified energy ETFs like XLE because these are not dedicated exploration and production funds.
Related: 4 Energy ETFs may be at Near-Term Tops
“Integrated oil companies — which drill and refine crude and sell fuel — have reduced operating capital costs to lower the break-even expense of producing a barrel of oil, he said. And while crude prices may be plateauing at present, the trend has been positive in recent months, he said,” according to CNBC.
Rivals to XLE include the Vanguard Energy ETF (NYSEArca: VDE), iShares U.S. Energy ETF (NYSEArca: IYE) and the Fidelity MSCI Energy Index ETF (NYSEArca: FENY).
For those seeking a hedge against further weakness in the energy sector, the ProShares Short Oil & Gas (NYSEArca: DDG) tries to reflect the inverse, or -100%, daily performance of the Dow Jones U.S. Oil & Gas Index.
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Energy Select Sector SPDR
