The VanEck Vectors Oil Services ETF (OIH) is another high velocity exchange-traded fund in this space. OIH has $1.7 billion in assets dedicated to a small group of 25 oil services stocks. This ETF has fallen over 18% in the recent dip and continues to see price searching for a meaningful bottom.

It’s easy to assume that the enhanced volatility depicted in these charts will turn investors away from the energy space. Yet, the data seems to indicate quite the opposite. XLE has managed to attract nearly $1 billion in additional net fund flows this year, according to data from ETF.com. The Vanguard Energy Index Fund (VDE) has also added $100 million over that time frame.

Investors chasing the energy theme are likely to be buoyed by the expectation of rising commodity prices, growing inflationary pressures, and the perceived value of beaten-down stocks. Many of the companies in XLE and other like-minded ETFs are trading well below their all-time highs with room to run on the upside if a sustainable uptrend can take shape. All it takes is a spark at the right time to ignite a fire under these companies.

Nevertheless, there remains several headwinds with the potential to stifle that optimism. Energy has been an unreliable growth area for a number of years and may ultimately be discounted if commodity prices fail to deliver. A slow down in economic activity may also impact the energy sector as cyclical forces take hold.

The following article was republished with permission from FMD Capital. 

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