Energy Sector Can Deliver a Sequel in 2017

The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, is higher by nearly 29% year-to-date, good for one of the best showings among all non-leveraged sector ETFs.

The Guggenheim S&P 500 Equal Weight Energy ETF (NYSEArca: RYE) has been the best performing broad energy sector-related ETF of the 2016, jumping more than 37%. While some advise caution on the energy sector heading into 2017, other investors believe the group can keep delivering.

A primary reason for the recent bullishness regarding crude is the production cut announced earlier this month by the Organization of Petroleum Exporting Countries (OPEC). OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day. While Saudi Arabia, OPEC’s biggest producer, has agreed to reduce output, Iran, Libya and Nigeria might not follow suit.

In addition to tumbling oil prices, one of the primary reasons investors ditched equity-based energy ETFs like XLE last year was the erosion of the energy sector’s allure as a dividend destination. In 2014 and 2015, no sector saw as many negative dividend actions, including cuts and suspensions, as did energy.