Energy stocks and the related exchange traded funds are getting drubbed this year. For example, the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, is lower by about 7% to start 2017.
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.
Some analysts believe the energy sector’s growth prospects remain attractive following the dip to start 2017.
“Evercore ISI’s Dennis DeBusschere upgraded energy on Friday. The underperformance of Energy, even in the context of the recent pullback in oil prices, has left an unusually strong divergence between the stocks and their underlying commodity,” notes Evercore according to a post by Crystal Kim of Barron’s.