ETF Trends
ETF Trends

Oil prices recently reentered a new bear market, but equity-based energy exchange traded funds, broadly speaking, deserve some credit. Those ETFs have been holding up pretty well considering oil’s recent slump. For example, the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, is off just a third of a percent over the past month.

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. However, some technicians see XLE as poised to keep delivering.

SEE MORE: Why Investors are Bearish on Oil ETFs

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.


However, the allure of dividend-paying energy names like Exxon, Chevron and Occidental Petroluem (NYSE: OXY) could be presenting investors with a compelling opportunity at the moment.

Relative to oil prices, “the energy stock sector presents a very different picture as the energy sector ETF still trades in a range that includes its recent high. The rising trendline from January is broken, but we cannot say the bears have really taken over here,” reports Michael Kahn for Barron’s.

Energy stocks historically are slack performers over the next several months while oil is one of the third quarter’s best-performing commodities on a historical basis. 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). However, the reverse of that scenario is currently playing out.

SEE MORE: 4 Energy ETFs may be at Near-Term Tops

“The bottom line is that oil is shaky although possibly on the verge of a bounce, yet oil stocks in some sectors are still good prospects for investors. Look for a nice dividend to cushion the bumps in the road and charts that show technical reason for buying beyond just lower prices than last month,” adds Barron’s.

For more information on the Energy ETF market, visit our Energy category.

Energy Select Sector SPDR

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.