Energy Sector Can Deliver a Sequel in 2017

“The other factor is that the economy is improving. This will help drive demand higher for oil and natural gas consumption and for oil based plastics and other products. The improving economy is reflected in forecasted U.S. GDP growth of 2.1% in 2017. This is higher than the 1.9% growth that the U.S. economy achieved in the first three quarters of 2016,” according to a Seeking Alpha analysis of XLE.

The outperformance in RYE may be explained in its alternative indexing methodology. As opposed to traditional beta-index ETFs, like XLE that reflects a cap-weighted index like the S&P 500 Energy Index, the Guggenheim Energy ETF equally weights its components so that smaller companies have a larger tilt in its underlying portfolio.

As we have witnessed this year, the rally in energy stocks on the back of rising crude oil prices helped smaller midsized companies outperform the more cumbersome large-cap segment.

“Another key factor that will help improve the performance of energy related companies is the potential for less costly regulation. The combination of a Republican president and Republican controlled House of Representatives and Senate increases the chance of energy regulations becoming more business-friendly for the energy sector,” according to Seeking Alpha.

For more information on the energy sector, visit our energy category.