The volatile energy sector has been vexing investors for most of this year, but for those that want to avoid the hassle while maintaining broad market exposure, the S&P 500 Ex-Energy ETF (NYSEArca: SPXE) is an idea to consider.
“An investment in the S&P 500 that excludes a particular sector gives you the flexibility to tailor your core U.S. equity exposure,” according to ProShares. “It can replace a traditional S&P 500 fund, allowing you to underweight or even eliminate a sector in your portfolio.”
Another perk of SPXE, though not necessarily by intent, is that the fund fits the bill as an environmentally conscious play. That a time when advisors and investors are increasingly warming to environmental, social and governance (ESG) strategies.
“While index (or ETF) investing is traditionally thought of as passive investing, ETF investors rarely act passively from a behavioral perspective,” reports InvestorPlace. “In some respects, ProShares’ basket of ex-sector ETFs feels like a thoughtful reaction to a rise in active trading through passive investment vehicles. In fact, this is partly why SPXE is appealing, as it eschews the idea of replicating the market’s performance in favor of staying one step ahead.”
Addition by Subtraction
More and more investors are asking for these ESG-focused products that not only achieve target returns but also focus on topics investors care about, such as climate change or renewable energy sources.
The news comes just as ESG is starting to make an impact in the investment arena and more interest in 2020 should follow. The challenge for these ESG funds is giving investors what they want, which is more ESG offerings, but at the same time, trying to generate a return.
“Oil producers have been severely impacted due to the double whammy of coronavirus lockdowns and a failed OPEC deal. Gas producers, however, have been more resilient. This has led many investors to rummage through the energy stock wreckage for value plays — especially in diversified, integrated energy firms,” according to InvestorPlace.
Many investors turn to broad benchmarks to fill out their core stock portfolio position. However, the broad approach may expose investors to underperforming segments of the market.
Despite energy’s decreasing weight in the S&P 500, excluding it is making a difference this year as SPXE is beating the traditional S&P 500 by nearly 200 basis points year-to-date.
For more alternative investing ideas, visit our Alternatives Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
