Energy sector-related exchange traded funds are providing more value to investors as U.S. shale drillers pay back debt with extra cash left over to return to shareholders.
Amid the recent crude oil boom, energy companies have generated large cash hoards to help pay down debt and potentially return value to shareholders through dividends, stock repurchases, or even acquisitions to expand their businesses, Bloomberg reported.
Independent drillers have now reported net debt averaging under 0.6 times the annual earnings before items like interest and taxes for Q2, compared to 1.7 times annual earnings year-over-year, according to Bloomberg data.
“Many E&Ps have reached, or are very quickly approaching, their debt target,” Spencer Cutter, an analyst at Bloomberg Intelligence, said. “Energy companies have come a long way toward repairing and reinforcing their balance sheets and are in a much stronger position today to handle another downturn in commodity prices than they were going into the 2015 or 2020 crashes.”
As the energy sector strengthens and continues to profit off elevated crude oil prices, investors can turn to several ETF strategies to access the segment. For example, something like the iShares U.S. Oil & Gas Exploration & Production ETF (IEO) and Invesco Dynamic Energy Exploration & Production Portfolio (PXE) provided more targeted exposure to the oil and gas energy exploration and production sub-sector.
The iShares U.S. Oil & Gas Exploration & Production ETF provides exposure to U.S. companies that are engaged in the exploration, production, and distribution of oil and gas, largely focusing on domestic oil and gas stocks.
The Invesco Dynamic Energy Exploration & Production ETF follows a type of smart beta indexing methodology where companies involved in the exploration and production of natural resources are evaluated based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action, and value.
Meanwhile, investors can turn to something like the Energy Select Sector SPDR (XLE), the Vanguard Energy ETF (VDE), the iShares U.S. Energy ETF (IYE), and the Fidelity MSCI Energy Index ETF (FENY) to access a broader energy sector play.
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