After racing higher last year, the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, is off just over 4% this year while the S&P 500 is higher by more than 6%.
The laggard status from energy, the S&P 500’s seventh-largest sector weight, could be a sign for investors to take a closer look at the group and ETFs such as XLE.
Energy is one of a small amount of sectors that still trades at a noticeable discount relative to 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.
Although XLE and other energy ETFs are currently lagging the broader market, some investors believe that situation will not last for long and are nibbling at energy funds.
“There’s a plausible case to be made that investors are selling energy stocks for reasons which don’t really add up. If so — and the insiders are confirming this — then the energy sector is a buy,” reports Michael Brush for MarketWatch.