Fuel for the Energy ETF Comeback

“These potential headwinds don’t make a good case to buy into energy, but the case for buying a diversified holdings of oil majors, as with the Energy Select Sector SPDR ETF, is attractive. Through better management of their balance sheets, more restrained frackers, and a less combative OPEC, the headwinds are still favorable to buy into oil majors,” according to a Seeking Alpha analysis of the energy sector.

Related: OPEC a Threat to Oil’s Rally

Some analysts believe the energy sector can deliver upside for investors later this year. 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.

“On average, the oil sector — which we can get exposure to through XLE — is going to be more cautious going forward. Many of the companies are very strict about their dividends and will do a lot (including taking on more debt) to sustain them in the short term. With a yield of 2.59% attached to an inflation-resistant sector, XLE provides a great yield regardless of the Fed and subsequent inflation changes,” according to Seeking Alpha.

For more information on the oil market, visit our oil category.