The energy sector is just one of two S&P 500 sectors that currently trades at a noticeable discount to its long-term averages. Additionally, the energy sector is usually among one of the largest sector weights in value ETFs, underscoring the point that the group is attractively valued relative to some defensive sectors, which trade at lofty multiples.
Plenty of skeptics remain regarding oil’s fundamental outlook. There might be something to that skepticism as many of the world’s major ex-U.S. producers of oil have not displayed a willingness to pare production. Even the output reductions in the U.S. have been modest. The good news is U.S. shale output is slightly declining, but challenges remain on the output front from OPEC producers.
Related: 32 Best ETFs to Track Crude Oil
“Low natural rates of interest favor renewables, nuclear power and other capital intensive businesses that benefit disproportionately from low cost money. Legacy investments made in a higher interest rate envi-ronment for the moment still offer relatively high potential returns to equity capital. The future rate is probably lower,” notes OilPrice.com.
For more information on Energy ETFs, visit our Energy category.